Suppose a perfectly competitive market is in long-run equilibrium and then there is a permanent increase in the demand for that product.The new long-run equilibrium will have
A) fewer firms in the market.
B) more firms in the market.
C) the same number of firms in the market.
D) probably a different number of firms, but it is not possible to determine if there will be more or fewer firms.
E) a permanent decrease in supply.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, a permanent increase in demand leads to higher prices and profits in the short run, attracting new firms into the market. In the long run, the entry of new firms increases supply, which lowers prices and profits until they reach a new equilibrium. Thus, there will be more firms in the market.

Suppose a Perfectly Competitive Market Is in Long-Run Equilibrium and Then