Given below is a perfectly competitive firm under long run equilibrium.AC and MC represent the average cost and the marginal cost incurred by the firm.P₀ is the equilibrium price level while Q₀ is the equilibrium output.

-Refer to Figure .What impact will the increase in raw material cost have on the long-run equilibrium price level?

Question

Given below is a perfectly competitive firm under long run equilibrium.AC and MC represent the average cost and the marginal cost incurred by the firm.P₀ is the equilibrium price level while Q₀ is the equilibrium output.

-Refer to Figure .What impact will the increase in raw material cost have on the long-run equilibrium price level?

Quizplus · Accepted Answer

An increase in raw material costs raises production costs for firms. In the long run, firms adjust their output and prices to cover these higher costs, leading to an increase in the equilibrium price level to a point where they can break even.

Given Below Is a Perfectly Competitive Firm Under Long Run