Consider a competitive constant-cost industry with many identical firms (i. firms with identical U-shaped cost curves).

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September 10, 2020
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Consider a competitive constant-cost industry with many identical firms (i. firms with identical U-shaped cost curves).

Consider a competitive constant-cost industry with many identical firms (i.e. firms with identical U-shaped cost curves). The demand curve in this market is downward sloping and the market is currently in a long-run equilibrium. Assume that there is an increase in demand, ceteris paribus. Compared to the initial long run equilibrium, which of the following statements is true?

(a)In the new long run equilibrium price will be higher and each of the firms in the industry will be producing a greater amount of output.

(b)In the new long run equilibrium price will be unchanged and each of the firms in the industry will be producing a greater amount of output.

(c)In the new long run equilibrium price will be higher and each of the firms in the industry will be earning positive economic profit.

(d)In the new long run equilibrium price will be unchanged and each of the firms in the industry will be earning zero economic profit.

(e)None of the above.

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