Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will be
A)lower, but total output will be larger than originally.
B)higher, and total output will be larger than originally.
C)lower, and total output will be smaller than originally.
D)higher, but total output will be smaller than originally.

Question

Quizplus · Accepted Answer

In a purely competitive increasing-cost industry, an increase in consumer demand leads to higher prices and larger total output in the long run. This is because the industry's supply curve slopes upward; as firms expand production to meet the higher demand, their costs increase, leading to higher prices.

Assume a Purely Competitive Increasing-Cost Industry Is Initially in Long-Run