Figure 6.5 -Figure 6.5 Shows the Short-Run and Long-Run Effects of an of an Increase

question 9

Multiple Choice

Figure 6.5
-Figure 6.5 shows the short-run and long-run effects of an increase in demand of an industry. The market is in equilibrium at point A, where 100 identical firms produce 6 units of a product per hour. If the market demand curve shifts to the right, which of the following statements is true in the long-run?

• A)The market price drops below $12 as more firms enter the market build more plants.
• B)Both existing firms and new firms earn a zero economic profit.
• C)All firms in the industry maximize their profits by producing the output where the marginal cost equals $10.
• D)all of the above

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Definitions:

Producer Surplus

The difference between the amount producers are willing to accept for a good or service versus how much they actually receive.

Price

The budgeted sum anticipated, imposed, or tendered in indemnity for something.

Surplus Amount

The excess quantity of a product that occurs when the supply of the product exceeds the demand for it at a given price.

Consumer Surplus

A measure of the difference between the total amount that consumers are willing and able to pay for a good or service versus the total amount that they actually do pay.