A Perfectly Competitive Market Is in Long-Run Equilibrium

question 90

Multiple Choice

A perfectly competitive market is in long-run equilibrium.At present there are 100 identical firms each producing 5,000 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 rises, resulting in no change in profit.
• D)In the short run, the typical firm increases its output, but its total cost also rises. Hence, the effect on the firm's profit cannot be determined without more information.

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Definitions:

Generous Behavior

Actions characterized by a willingness to give more of something, such as time, money, or resources, than is strictly necessary or expected.

Cognitive

Pertaining to the mental processes involved in acquiring knowledge and understanding, including thinking, knowing, remembering, and problem-solving.

Errors in Logic

Missteps in reasoning that lead to invalid arguments or incorrect conclusions.

Psychodynamic

A psychological perspective focusing on the dynamic interplay between conscious and unconscious processes in shaping personality and behavior.