Figure 14-9
-Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Question

Figure 14-9  
-Refer to Figure 14-9.Assume that the market starts in equilibrium at point A in panel (b)and that panel (a)illustrates the cost curves facing individual firms.Suppose that demand increases from D0 to D1.Which of the following statements is not correct?

Quizplus · Accepted Answer

Point B represents a short-run equilibrium point where firms are able to earn positive economic profits due to the increase in demand. However, this is not a long-run equilibrium point as firms will enter the market in the long run, causing the supply curve to shift to the right and reducing the market price back to the minimum point of the long-run average cost curve (point C). Point A is a long-run equilibrium point where the market is in equilibrium and firms are earning zero economic profits. Point C represents the minimum point of the long-run average cost curve and is also a long-run equilibrium point as firms are producing at the minimum efficient scale.