Answer to Question #230089 in Economics for Tina

Question

Suppose that a perfectly competitive industry is in long-run equilibrium, and demand increases. Explain the short- and long-run effects on the firm and the industry.

Answer 1

If demand increases, then the equilibrium price and quantity will increase to, so the firms will start to receive positive profit again, and more firms will enter the industry, until supply increases, equilibrium price decreases, and firms receive zero profit in the long-run again.