Figure 14-14

-Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Question

Figure 14-14

-Refer to Figure 14-14.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Quizplus · Accepted Answer

Point B represents a short-run equilibrium point, as the firm is earning positive economic profits. However, in the long run, firms will enter the market due to the high profits, causing the market supply to increase and the price to decrease, shifting the demand curve leftward until it intersects the long-run supply curve at point C, which is the long-run equilibrium point. Therefore, point C is the only correct statement regarding long-run equilibrium. Points A and B are short-run equilibria, and point A may or may not be a long-run equilibrium point depending on the specific market conditions.

Figure 14-14 -Refer to Figure 14-14.Assume That the Market Starts in Equilibrium