A Perfectly Competitive Market Is in Long-Run Equilibrium

question 146

Multiple Choice

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5000 units of output.The prevailing market price is $20.Assume that each firm faces increasing marginal cost.Now suppose there is a sudden increase in demand for the industry's product,which causes the price of the good to rise to $24.Which of the following describes the effect of this increase in demand on a typical firm in the industry?

• A) In the short run, the typical firm increases its output and makes an above normal profit.
• B) In the short run, the typical firm's output remains the same but because of the higher price, its profit increases.
• C) In the short run, the typical firm increases its output but its total cost also increases, resulting in no change in profit.
• D) In the short run, the typical firm increases its output but its total cost also increases. Hence, the effect on the firm's profit cannot be determined without more information.

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Definitions:

Zygote

The initial cell formed when a sperm cell fertilizes an egg cell, representing the earliest stage of development in many organisms.

Chromosome Number

The total number of chromosomes present in the cell of an organism, which is characteristic of each species.

Gamete

A fully developed single-set chromosome male or female reproductive cell capable of merging with its counterpart from the opposite gender to produce a zygote through sexual reproduction.

Haploid

A cell or nucleus having a single set of unpaired chromosomes, typical of gametes.