In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?

Question

BlackTom AI · Accepted Answer

The question describes a typical perfect competition scenario: no barriers to entry, the firm starts in long-run equilibrium, and there is an increase in market demand for the good. This setup implies certain long-run adjustments due to profit opportunities.
Option 1: 'The firm’s price will be greater than its average revenue.' In perfect competition, price equals average revenue (P = AR) because the firm is a price taker. After the demand increase is absorbed in the long run by entry and adjustment, the price does not stay above AR; it returns to the normal long-run level. Therefore this statement is incorrect.
Option 2: 'New firms will enter the market.' When demand rises, firms can earn positive economic profits in the short run, attracting new entrants. In the long run, entry continues until profits are driven back to zero and prices adjust to the normal level. Given there are no barriers, the result is indeed that new firms enter, expanding industry supply and restoring long-run equilibrium. This statement is correct.
Option 3: 'The firm will continue to produce the same quantity of output.' In the long run with entry, the total market supply increases, and the price tends to revert to its original long-run level. Per-firm output typically returns to the normal, efficient scale, but because more firms are in the market, total industry output changes. Saying the firm continues to produce the same quantity is not guaranteed and is not the standard long-run outcome under an emergency demand shift with entry. This makes the statement dubious and usually false.
Option 4: 'The firm will earn positive economic profit.' In the long run, competitive markets drive profits to zero since any positive profits induce entry. Thus, this statement is incorrect for the long-run outcome.
Option 5: 'The market supply will decrease, but the quantity supplied will increase.' Entry increases market supply, not decreases. The sentence contradicts the logic of entry in response to profits, so this statement is false.
Overall, the only statement that aligns with the long-run adjustment under increasing demand with free entry is that new firms will enter the market.

In the absence of barriers to entry, a typical firm is currently in long-run equilibrium. Assume there is an increase in the market demand for the good that the firm is producing. Which of the following will happen in the long run?单项选择题

类似问题

In a perfectly competitive market ____________ determines how value created is divided between consumers and producers.

Which of the following will be true if the firm is in a perfectly competitive market and the price is P1 ?

Zucchini is produced in a perfectly competitive market with a downward-sloping demand curve and an upward- sloping supply curve. Dawson Farm is a typical perfectly competitive farm that produces and sells zucchini at the equilibrium price of $1.75 per pound. Which of the following is true?

In a perfectly competitive market, the process of entry and exit will end when firms in the market:

The following figure represents the cost curves and the market price for a perfectly competitive firm. Which of the following statements is true about the long run equilibrium in this market?

The following figure represents the cost curves and the market price for a perfectly competitive firm. Which of the following statements is true about the long run equilibrium in this market?

Question18 Which of the following are not needed for market efficiency? Goods are excludable and rival Consumers and producers are price-takers Homogeneous goods Easy access to goods ResetMaximum marks: 1 Flag question undefined

In the absence of externalities, which market structure produces the socially optimal quantity?

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单