Question

Aperfect ly competitve market is initially in a long run competive equilibirium. Then market demand increases. As a result, existing firm in the market begins to _______. By the time all adjustments have been made, profits will________

Answer 1

As the demand increases, price will go up.

Firms will start earning economic profits.

Economic profit will attract other firms to enter the market.

Supply will start increasing.

So, prices would come down.

Economic profits will be zero after all adjustments have been mage.

So,

A perfectly competitive market is initially in a long run competitive equilibrium. Then market demand increases. As a result, existing firm in the market begins to earn positive economic profit. By the time all adjustments have been made, profits will diminish (or will be zero)