Exhibit 7-18 A typical firm in a perfectly competitive market In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Question

Exhibit 7-18  A typical firm in a perfectly competitive market  In Exhibit 7-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Quizplus · Accepted Answer

In the short run, the firm will increase output along its short-run marginal cost curve because it is the most efficient way to increase output in the short run. The firm cannot adjust its plant size in the short run, so it must operate with its existing fixed inputs. As a result, the marginal cost curve represents the additional cost of producing each unit of output, taking into account the variable inputs (e.g. labor) that can be adjusted in the short run. The short-run average total cost curve represents the total cost per unit of output, including both fixed and variable costs, and the long-run average cost curve represents the firm's minimum efficient scale in the long run. The firm will not shut down in the short run if there is an increase in demand because it can still cover its variable costs.

Exhibit 7-18 a Typical Firm in a Perfectly Competitive Market