n the very short run: new firms may enter an industry existing firms may change

Question

n the very short run: new firms may enter an industry existing firms may change the quantity they are supplying. price and quantity supplied are absolutely fixed. quantity supplied is absolutely fixed. Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their free entry implies that long-run profits will be zero no matter how much each firm produces. firms seek maximum profits and to do so they must choose to produce where average costs are firms maximize profits and free entry implies that maximum profits will be zero. Ofirms in the industry desire to operate efficiently. If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve, an outward shift in the supply curve would be reflected primarily in the form of. higher prices higher output lower prices lower output

Explanation / Answer

1) In the very short run:

Solution: quantity supplied is absolutely fixed

Explanation: short run, at least one factor of production is fixed thus the quantity supplied is absolutely fixed

2) Firms in the long-run equilibrium in a perfectly competitive industry will produce at the low points of their

Solution: firms maximize profits and free entry implies that maximum profits will be zero

Explanation: Firms in long-run equilibrium in a perfectly competitive industry will produce at the low points of their average total cost curves because of the free entry and maximisation of the profits

3) If the market for bottled spring water is characterized by a very elastic supply curve and a very inelastic demand curve, an outward shift in the supply curve would be reflected primarily in the form of

Solution: lower prices

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