A perfectly competitive market is initially in long-run competitive equilibrium. Then, market demand increases. This causes existing firms in the market to __________ and __________. As a result of the latter, the market supply curve shifts __________.

Question

Quizplus · Accepted Answer

An increase in market demand will cause firms to produce more output to meet the higher demand. However, some existing firms may not be able to keep up with the increased demand, leading them to exit the market. As a result, new firms will enter the market, leading to an overall increase in market supply. Therefore, the market supply curve shifts rightward.

A Perfectly Competitive Market Is Initially in Long-Run Competitive Equilibrium