Exhibit 7-19 Long-run perfectly competitive industry

As shown in Exhibit 7-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Question

Exhibit 7-19 Long-run perfectly competitive industry

As shown in Exhibit 7-19, assume that a perfectly competitive industry is in long-run equilibrium at point A. If the demand curve shifts from D₁ to D₂, the adjustment sequence between points will be:

Quizplus · Accepted Answer

When the demand curve shifts from D₁ to D₂, the equilibrium shifts from point A to point B. In the short run, due to the increase in demand, the price will increase to P2, and firms will increase production to Q2. However, in the long run, new firms will enter the industry, causing an increase in supply and a decrease in price to P1. The equilibrium will finally settle at point C, with a higher quantity of output and a lower price than in the initial equilibrium at point A. Therefore, the adjustment sequence will be A to B, then to C.

Exhibit 7-19 Long-Run Perfectly Competitive Industry