Suppose the market for corn is a purely competitive, constant-cost industry that is in long-run equilibrium. Now assume that an increase in consumer demand occurs. After all resulting adjustments have been completed, the new equilibrium price will be
A) the same as the initial equilibrium price, but the new industry output will be greater than the original output.
B) greater than the initial price, and the new industry output will be greater than the original output.
C) less than the initial price, but the new industry output will be greater than the original output.
D) the same as the initial equilibrium price, and the industry output will remain unchanged.

Question

Quizplus · Accepted Answer

In a purely competitive, constant-cost industry, an increase in demand initially raises prices and profits, attracting new firms. However, as the industry expands, supply increases, driving prices back to the original equilibrium level, but with a higher output.

Suppose the Market for Corn Is a Purely Competitive, Constant-Cost