As demand shifts up, the short-run scenario from microeconomic theory includes
A) prices rising faster than costs.
B) firms earning excess profits.
C) output climbing along the marginal cost schedules of existing firms.
D) an eventual increase in the number of firms operating in the given market and an associated shift in the market supply curve.
E) all of the above.

Question

Quizplus · Accepted Answer

When demand shifts up, in the short run, prices tend to rise faster than costs due to the immediate increase in demand, leading firms to earn excess profits. This incentivizes firms to increase output along their marginal cost schedules to meet the higher demand. Over time, these excess profits attract new firms into the market, increasing the number of firms operating and shifting the market supply curve to the right, eventually stabilizing prices and profits.

As Demand Shifts Up, the Short-Run Scenario from Microeconomic Theory