Consider an industry populated by identical firms, facing constant input prices,
ID: 1129153 • Letter: C
Question
Consider an industry populated by identical firms, facing constant input prices, and having all the other characteristics of a perfectly competitive market. Which of the following statements describes the new long-run market equilibrium resulting from a shift in demand?
A) a shift in demand has no effect on the long-run average cost and so there is no change in equilibrium price and quantity.
B) a shift in demand will change the equilibrium price and quantity.
C) a shift in demand has no effect on the long-run average cost, resulting in change in equilibrium quantity but not price.
D) a shift in demand has no effect on the long-run average cost, resulting in change in equilibrium price but not quantity.
E) a shift in demand is not possible
Explanation / Answer
Answer : D) a shift in demand has no effect on the long-run average cost, resulting in change in equilibrium price but not quantity. Because in long run quantity is fixed.