If the market demand for the product increases, in the short run a purely competitive firm
A) will not change its output quantity because there are so many firms that the individual firm will not be affected by the change.
B) will earn higher profits or experience smaller losses as a result of the change in the market.
C) will experience no change in costs as it steps up production in response to the change in the market.
D) can employ more inputs and increase the size of its plant, to respond to the change in the market.

Question

Quizplus · Accepted Answer

In the short run, a purely competitive firm cannot increase its plant size or employ more inputs, so it cannot increase its output quantity. However, if the market demand for the product increases, the price that the firm receives for its product will increase, which will increase its total revenue. If the increase in revenue exceeds the increase in total costs, the firm will earn higher profits or experience smaller losses. If the increase in revenue is not enough to cover the increase in total costs, the firm will still earn some profit or experience smaller losses than before.

If the Market Demand for the Product Increases, in the Short