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
What will be an ideal response?
Short run: An increase in demand raises equilibrium price and quantity. Existing firms produce more (because the higher price means that MR=MC at a higher quantity) and earn positive economic profits.
Long run: Positive profits attract new firms into the industry. The increase in supply reduces price and further increases quantity. Firms continue to enter until economic profits return to zero, and there is no further incentive for entry.
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A. prices B. quantities C. neither prices nor quantities
Time is up in a qualifying call. You measure success of the call by all the following except:
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A firm has just ended its calendar year making a sale in the amount of $150,000 of merchandise purchased during the year at a total cost of $112,500. Although the firm paid in f for the merchandise during the year, it has yet to collect at year end from the customer. The n profit and cash flow from this sale for the year are
A) $0 and $150,000, respectively. B) $37,500 and -$150,000, respectively. C) $37,500 and -$112,500, respectively. D) $150,000 and $112,500, respectively.