Suppose a Perfectly Competitive Constant-Cost Industry Is in Long-Run Equilibrium

question 75

Multiple Choice

Suppose a perfectly competitive constant-cost industry is in long-run equilibrium when market demand increases. What will probably happen to a firm in this industry in the long run?​

• A)There will be no change in the equilibrium price and quantity supplied by the firm.
• B)The equilibrium price will be higher in the long run.
• C)The equilibrium price will be lower in the long run.
• D)It will charge the same equilibrium price but will reduce its output.
• E)It will experience higher average total costs and will reduce its output.

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Definitions:

First-in

A term indicating the prioritization or usage of resources, often in the context of inventory management.

Materials

Raw substances or components that are converted through the manufacturing process into finished goods.

Equivalent Units

A method in process costing that transforms units that are incomplete into an equivalent number of units that are considered fully completed.

Conversion Costs

Conversion costs are the combined costs of labor and overhead expenses required to convert raw materials into finished products.