Super Snackin Services is in long-run equilibrium, and then there is an increase in the market demand for snacks. One expects that:
A)in the long run, new firms will enter the market.
B)there will be a short-run increase in the number of firms, but in the long run, the number of firms will return to the original level.
C)firms will leave the market in the long run.
D)firms will shut down, but they will not leave the industry in the long run.

Question

Quizplus · Accepted Answer

An increase in market demand for snacks indicates a shift in the demand curve to the right. In the short run, the existing firms, including Super Snackin Services, will increase their output and earn higher profits. However, in the long run, new firms will enter the market to take advantage of the higher profits. This increase in the number of firms will lead to a rightward shift of the industry supply curve, which will lower the price of snacks and reduce profits for all firms. The long-run equilibrium will be at a lower price and a higher level of output than before the increase in demand, with more firms in the industry.

Super Snackin Services Is in Long-Run Equilibrium, and Then There