In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition.

-Refer to Figure .What will be the effect of the increase in demand (from Q₀ to Q₁) on the short run supply curve?

Question

In the figure given below MC denotes the marginal cost and AC denotes the average cost of a firm under perfect competition. 
  
-Refer to Figure .What will be the effect of the increase in demand (from Q₀ to Q₁) on the short run supply curve?

Quizplus · Accepted Answer

An increase in demand will lead to an increase in both price and quantity. As a result, the marginal cost of a firm will remain unchanged, but the average cost will decrease. This means that the firms will continue to produce at the same level of marginal cost, but the price increase will make it profitable for firms to enter the market. As a result, the short-run supply curve will shift to the right.

In the Figure Given Below MC Denotes the Marginal Cost