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 (SMC) as long as the price is greater than the minimum point on its SMC. This is because the firm will want to take advantage of the higher price to earn more profit. The short-run average total cost curve (SATC) and long-run average cost curve (LRAC) are not relevant in this situation as they do not determine the firm's optimal output level. However, if the increase in demand results in a price lower than the minimum point on the SATC, the firm will shut down in the short run.

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