A sudden rise in the market demand in a competitive industry leads to a. A short run market equilibrium price higher than the original equilibrium b. A market equilibrium lower than the short run price c. ​Entry of new firms into the market d. All of the above

A sudden rise in the market demand in a competitive industry leads to

a. A short run market equilibrium price higher than the original equilibrium
b. A market equilibrium lower than the short run price
c.
​Entry of new firms into the market
d. All of the above

 

 

Answer:

Correct option: (C) Entry of new firms in the market

Reason: With a sudden increase in the demand, prices in the industry will rise, thereby leading to increased profits. This will attract new firms in the industry (who would want to enjoy these high profits). However, in the long run, entry of new firms in the industry will reduce prices and thus profits.

Asked on February 15, 2018 in economics.
Add Comment
0 Answer(s)
  • Votes
  • Oldest

Your Answer

By posting your answer, you agree to the privacy policy and terms of service.