A perfectly competitive industry with constant costs initially operates in long-run equilibrium. When demand increases:
A) in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit.
B) in the long run and the short run, prices and profits will be higher than before the demand increase.
C) in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits.
D) in the long run and the short run, prices and profits will be lower than before the demand increase.
Correct Answer:
Verified
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