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

question 120

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 same as it was before the price increase.

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Definitions:

Writ of Execution

A court order granting permission to enforce a judgment, typically by allowing for the seizure or sale of the debtor's property.

Record Mortgage

A legal document indicating a mortgage loan has been registered with the local government land office, making it part of the public record.

Mortgage Loan

A loan secured by real property through the use of a mortgage note, used by purchasers of real property to raise funds to buy real estate.

Interest

Interest refers to the cost of borrowing money, usually expressed as a percentage of the principal loan amount, or the income earned from investment.