Figure 6.5
-Figure 6.5 shows the short-run and long-run effects of an increase in demand of an industry. 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 the number of firms in the industry as the industry moves from point A to point B?

Question

Quizplus · Accepted Answer

In the long run, the number of firms in the industry will remain the same. This is because the increase in demand will lead to an increase in the price of the product, which will attract new firms to enter the industry. The entry of new firms will increase the supply of the product, which will drive the price back down to the equilibrium level.

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