20 Jul WHICH STATEMENT BEST CHARACTERIZES THE SHORT-RUN EFFECT OF THAT CHANGE IN THE MARKET?
The first diagram below shows the current market demand curve (D) long-run supply curve (LRS) and s Show more The first diagram below shows the current market demand curve (D) long-run supply curve (LRS) and short-run supply curve (S) for a perfectly competitive industry. The second diagram shows the current short-run and long run cost curves of a typical firm in this industry. The current price is Po. 4i. Suppose that demand rises to D 1 . Which statement best characterizes the short-run effect of that change in the market? a. Price rises so consumers buy less of this product requiring fewer firms. b. Price rises above average cost so new firms enter this industry. c. Price rises and each existing firm in the industry produces more output. d. A shortage results because more is demanded but firms cannot produce more in the short run. 4ii. As a result of the increase in demand for this product in the long run a. New firms will enter this industry because profits have become positive. b. Some firms will leave this industry because now that the existing firms are bigger fewer are needed. c. There will be only one firm left in the industry because that is all that is needed. d. None of the above will happen 4iii. When a new long run equilibrium is reached in this industry after demand has risen which statement best characterizes the new conditions in the market? a. Price returns to P o so that profits will again be zero. b. Price stays above P o due to greater demand. c. Price increases above that which prevailed in the new short run equilibrium. d. Price falls below P o and thus consumers buy more of this product. Show less
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