A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. By the time all adjustments have been made, price will be __________ its original level if the industry is a(n) __________ cost industry.

Question

Quizplus · Accepted Answer

In an increasing cost industry, when demand increases, firms enter the market, driving up the prices of inputs because more firms are competing for the same resources. This leads to higher production costs and, consequently, a higher market price even after all adjustments have been made, including reaching a new long-run equilibrium.

A Perfectly Competitive Market Is Initially in Long-Run Competitive Equilibrium