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 leads to a temporary rise in price, which attracts new firms due to the profit incentive. As new firms enter, supply increases, pushing the price back down to the original equilibrium price. However, the total output of the industry increases due to the higher number of firms.

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