In a perfectly competitive industry, assume there is a permanent increase in demand for a product. The process of transition to a new long-run equilibrium will include:

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a permanent increase in demand will lead to higher prices and profits in the short run, attracting new firms to enter the market. This will increase supply until prices return to the level of average costs, establishing a new long-run equilibrium. There will be no exit of firms or temporarily lower production costs in this process.

In a Perfectly Competitive Industry, Assume There Is a Permanent