Suppose a perfectly competitive market is in long-run equilibrium with a price of $12.Then there is a permanent increase in demand.As a result,in the short run the market price ________ and in the long run the number of firms ________ and the price is ________ the price was in the short run.
A) rises; does not change; is equal to
B) rises; increases; higher than
C) rises; does not change; lower than
D) falls; decreases; is equal to
E) rises; increases; lower than

Question

Quizplus · Accepted Answer

In the short run, an increase in demand leads to higher prices due to the fixed number of firms. In the long run, the higher profits attract more firms into the market, increasing supply, which lowers the price back towards the long-run equilibrium, but with more firms in the market.

Suppose a Perfectly Competitive Market Is in Long-Run Equilibrium with a Price