Question

17.  

Assume that a perfectly competitive industry is operating at its long run equilibrium. Then, the demand for its product increases.

Which of the following best describes the SHORT RUN response?

A.  market demand shifts right, firms' demand curves decrease, and output decreases.

B.  market demand shirts right, firms' demand curves decrease, and output increases.

C.  market demand shifts right, firms' demand curves increase, and output increases.

D.  market demand shirts right, firms' demand curves increase, and output decreases.

18.  

Assume that the increase in demand has resulted in a perfectly competitive industry making positive economic profits (supranormal profits) in the short run.

In the LR phase of this adjustment, which of the following things would NOT happen?

A.  Firms will enter the industry

B.  The market price will fall.

C.  The market output will decrease.

D.  Firms will decrease their output.

E.  Firm demand curves will shift down.

F.  Economic profits start to fall.

19.	When a perfectly competitive industry experiences a demand increase, existing firms will be hurt in the short run.
		T/F

Answer 1

17 C) market demand curve shift right infirm demand curve increase and output increase is due to increase in the supply of the goods in connection increase in the demand.

18 A) The firm will enter the industry

The supernormal profits attract new firm in the industry hence normal profit will arise in the long run

19) True

If the firm earns supernormal profit increase in th demand and supernormal profits attract new firm hence it leads to normal profit in the long run.