Figure 13-14
-Refer to Figure 13-14.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 13-14  
-Refer to Figure 13-14.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 is a short-run equilibrium point because at this point, the market price is above the minimum point of the average variable cost curve, so firms are making economic profits. In the long run, new firms will enter the market, increasing supply and driving down the price to the minimum point of the average cost curve, which is point C. Therefore, point C is the long-run equilibrium point. Point A is also a long-run equilibrium point, as it represents the intersection of the market demand and supply curves with the minimum point of the average cost curve. Thus, the only incorrect statement is that point B is a long-run equilibrium point.