Question

1) in a short run competitive equilibrium, what happens to output of an indivdual firm following an industry wide- rise in demand?

2) in a short run competitive equilbrium, what happens to the profit at an individual frim in a perfectly competitive market following an industry-wide rise in demand?

Answer 1

1) it increases. Industry wide increase in the demand will shift the demand curve to the right in the market. This increases the price of the product. Individual firm also experiences an increase in the price which means the flat demand curve it faces shifts up. Marginal cost is upward sloping in this range which means there is an increase in the level of output produced by individual firm.

2) profit should increase. There will be no change in the average cost curve and this implies that higher price level with unchanged average total cost will increase profit.