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 long-run impact of the increase in demand (from Q₀ to Q₁) on the price level in this industry?

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 long-run impact of the increase in demand (from Q₀ to Q₁) on the price level in this industry?

Quizplus · Accepted Answer

In perfect competition, the price level is determined by the intersection of the industry's demand and supply curves. As the demand increases from Q₀ to Q₁, the industry's output and price level will increase in the short run. However, in the long run, new firms will enter the market, increasing the supply and causing the price to decrease until it reaches the minimum point of the average cost curve (i.e., $3 in this case). Therefore, the correct answer is B.

In the Figure Given Below MC Denotes the Marginal Cost