A perfectly competitive, increasing-cost industry is initially in long-run equilibrium. If a permanent increase in demand occurs, then at the new long-run equilibrium, _____.

Question

A perfectly competitive, increasing-cost industry is initially in long-run equilibrium. If a permanent increase in demand occurs, then at the new long-run equilibrium, _____.​

Quizplus · Accepted Answer

In a perfectly competitive, increasing-cost industry, an increase in demand leads to a higher price and an increase in output in the short run. However, in the long run, as new firms enter the market, the cost of production will increase, shifting the supply curve to the left. The new long-run equilibrium will occur at a higher price than before and a greater total output due to the increased number of firms producing in the industry. Thus, the correct choice is A.

A Perfectly Competitive, Increasing-Cost Industry Is Initially in Long-Run Equilibrium