A Constant-Cost, Perfectly Competitive Market Is in Long-Run Equilibrium

question 176

Multiple Choice

A constant-cost, perfectly competitive market is in long-run equilibrium.At present, there are 1,000 firms each producing 400 units of output.The price of the good is $60.Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64.In the new long-run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose?

• A)The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices.
• B)The average total cost will be lower than it was before the price increase because of economies of scale.
• C)The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand.
• D)The average total cost will be the lower than it was before the price increase as output increases.

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