If all the firms in a perfectly competitive industry that is characterized by constant costs are charging a price equal to marginal cost, then an upward shift in demand will in the long run (if there are marginal firms which have not yet entered the industry):
A)cause each firm's marginal cost curve to move to the right.
B)cause the industry price to rise.
C)cause the industry price to fall.
D)have no effect on the industry price.
E)cause excess capacity.

Question

Quizplus · Accepted Answer

In a perfectly competitive industry characterized by constant costs, an upward shift in demand will initially increase prices and profits, attracting new firms. In the long run, the entry of new firms will increase supply, driving the price back down to the original level, where price equals marginal cost. Thus, there will be no effect on the industry price in the long run.

If All the Firms in a Perfectly Competitive Industry That