Refer to the information provided in Figure 9.6 below to answer the questions that follow. Figure 9.6
-Refer to Figure 9.6. Industry demand is initially D1 and industry supply is initially S1 in this increasing cost industry. If demand increases to D2, then in the long run the industry will
A) stay at Point B.
B) move to Point C.
C) move to Point E.
D) move to Point F.

Question

Refer to the information provided in Figure 9.6 below to answer the questions that follow.  Figure 9.6
-Refer to Figure 9.6. Industry demand is initially D1 and industry supply is initially S1 in this increasing cost industry. If demand increases to D2, then in the long run the industry will
A) stay at Point B. 
B) move to Point C. 
C) move to Point E. 
D) move to Point F.

Quizplus · Accepted Answer

When demand increases from D1 to D2, the price and quantity in the short run will increase to Point B. However, in the long run, new firms will enter the industry because of the profits generated at the higher price level. This will shift the industry supply curve to S2, resulting in a new equilibrium at Point E, where the price and quantity will be higher than the initial equilibrium at Point A. Therefore, the industry will move to Point E in the long run.

Refer to the Information Provided in Figure 9