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, which of the following statements is TRUE in the long run?

Question

Quizplus · Accepted Answer

In the long run, an increase in demand leads to new firms entering the market, which increases supply and drives the price down, often to a point where firms just cover their costs, leading to zero economic profit. Firms in competitive markets will produce where marginal cost equals marginal revenue, which can be represented by the market price if the price has adjusted to the point where no new firms want to enter the market.

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