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Suppose All Firms in an Industry in Long-Run Equilibrium Have

Question 42

Multiple Choice

Suppose all firms in an industry in long-run equilibrium have U-shaped average cost curves.If the market demand increases,the resulting increase in price in the short run

A) rations out the current production.
B) rations out the current production and results in higher profits to producers.
C) rations out the current production, results in higher profits to producers, and prompts existing firms to increase output by hiring more variable input.
D) rations out the current production, results in higher profits to producers, prompts existing firms to increase output by hiring more variable input, and causes a short-run increase in industry capacity by drawing new producers into the market.
E) rations out the current production, results in higher profits to producers, prompts existing firms to increase output by hiring more variable input, and causes a short-run increase in industry capacity by drawing new producers into the market, all while existing firms increase capacity by expanding plant size.

Correct Answer: