The market price in a perfectly competitive industry in short-run equilibrium is R3 and the minimum average cost for all firms is R2.50. In the long run, we would expect an increase in

Question

Quizplus · Accepted Answer

In the long run, firms will enter the industry due to the profits being made at the current price. This increase in the number of firms will lead to an increase in supply, causing the market price to decrease. As the market price decreases, each firm's profit will decrease, and they will have to increase their output to maintain the same level of profit. However, there is no reason to expect an increase in each firm's output or average costs in the long run.

The Market Price in a Perfectly Competitive Industry in Short-Run