Holding all else constant,an increase in the market demand for a product in a competitive market would cause:
A) the average total cost (ATC) curve of the firms to increase.
B) a decrease in the price a firm could charge for the product.
C) the marginal revenue (MR) curve of the firms to shift upward/rightward.
D) the marginal cost (MC) curve of the firms to increase.
E) a decrease in profits for the firm.

Question

Quizplus · Accepted Answer

An increase in market demand would cause the demand curve for the firm to shift rightward, leading to a higher equilibrium price and quantity. This, in turn, would cause the marginal revenue (MR) curve to shift rightward as well, as MR is directly affected by the change in quantity sold. The average total cost (ATC) curve, marginal cost (MC) curve, and profits would not be directly affected by the increase in market demand, holding all else constant. However, the price a firm could charge for the product may either increase or decrease, depending on the magnitude of the shift in demand relative to the elasticity of supply. So, option B is incorrect.

Holding All Else Constant,an Increase in the Market Demand for a Product