Exhibit 7-9 A typical firm in a perfectly competitive market

-Refer to Exhibit 7-9 and assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand.Along which cost curve,in the short run,will the firm increase output?

Question

Exhibit 7-9 A typical firm in a perfectly competitive market
 
-Refer to Exhibit 7-9 and assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand.Along which cost curve,in the short run,will the firm increase output?

Quizplus · Accepted Answer

In the short run, the firm will increase output along the short-run marginal cost curve B as this curve represents the additional cost of producing one more unit of output. As demand increases, the firm will produce more to meet the demand, and increasing output along the short-run marginal cost curve will minimize the increase in average total cost. The firm cannot move along the long-run average cost curve in the short run, as this would require changes in the firm's capital and production facilities, which cannot be achieved in the short run. The firm would not shut down in the short run, as it can still cover its variable costs even if it is making losses in the short run.

Exhibit 7-9 a Typical Firm in a Perfectly Competitive Market