Assume that a perfectly competitive constant-cost industry is in long run equilibrium when market demand suddenly increases.All of the following statements are correct,except:

Question

Quizplus · Accepted Answer

In the short run, the increase in demand will result in a temporary shortage of the product. This will cause the market price to increase and firms will earn economic profit. However, in the long run, new firms will enter the market to earn this profit, increasing the market supply and shifting the supply curve to the right. This will lead to a decrease in market price back to its original level and any short run economic profit will be eliminated. Therefore, option D is incorrect as the market price is expected to increase in the short run due to the temporary shortage of the product.

Assume That a Perfectly Competitive Constant-Cost Industry Is in Long