Figure 6.5
-Figure 6.5 shows the short-run and long-run effects of an increase in demand of an industry with increasing cost. The market is in equilibrium at point A, where 100 identical firms produce 6 units of a product per hour. If the market demand curve shifts to the right, what will happen to an individual firm's profit?

Question

Quizplus · Accepted Answer

In a perfectly competitive market, an increase in demand initially leads to higher prices and profits for existing firms (point B), attracting new firms into the market. However, the scenario described involves an industry with increasing costs, where firms initially earn positive profits due to the increased demand before new firms enter.

Figure 6.5 -Figure 6.5 Shows the Short-Run and Long-Run Effects of an of an Increase