Answer to Question #113697 in Economics of Enterprise for rio

Question

Explain, using diagrams, what happens to a perfectly competitive firm in the short run when the demand for its product suddenly increases

Answer 1

In perfect competiton ,when the market demand increases the market price of goods and the quantity increaseses in the short run.This causes supernormal profits.Some firms will enter the industry because of increased demand and this will cause the prices to fall.As more firms enter the industry, supply will increase and price will fall.