A Perfectly Competitive Industry with Constant Costs Initially Operates in Long-Run

question 20

Essay

A perfectly competitive industry with constant costs initially operates in long-run equilibrium.When demand increases, one will observe that:
A.in the short run, prices and profits will be higher, but in the long run, price will fall back to its original level and firms will again earn zero economic profit.
B.in the long and short runs, prices and profits will be higher relative to what they were before the demand increase.
C.in the short run, prices and profits will fall, but in the long run, price will rise back to its initial level, as will profits.
D.in the long and short runs, prices and profits will be lower relative to what they were before the demand increase.

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Definitions:

Critical Value

A critical value is a threshold in hypothesis testing that defines the boundary or cutoff points for deciding whether to reject the null hypothesis.

Population Mean

The average value of a property in a population, calculated by summing the values of all members of the population and dividing by the total number of members.

Confidence Interval

A range of values derived from sample statistics that is likely to cover the true parameter of the population with a certain level of confidence.

Standard Deviation

A statistic that measures the dispersion of a dataset relative to its mean.