Dallars per unit ef Fres MC AC Output 0 Figure 8.8.1 8) Refer to Figure 8.8.1 ab
ID: 1118889 • Letter: D
Question
Dallars per unit ef Fres MC AC Output 0 Figure 8.8.1 8) Refer to Figure 8.8.1 above. After the increase in demand, from D1 to D2 in panel (b), and being this a constant-cost industry, what is likely to happen in the market?8) A) Supply will shift to S2 and the market will settle in equilibrium back at point A, after going through B and then C. B) Supply will not shift and the market will settle in equilibrium back at point A after moving only temporarily to point B C) Supply will shift to $2 and the market will settle in equilibrium at point C D) Supply will not shift, and the market will settle in equilibrium at point B 9) 9) The long-run supply curve in a constant-cost industry is linear and: A) horizontal. B) vertical C) downward-sloping D) could have any constant slope. E) upward-sloping.Explanation / Answer
8) Increase in demand leads to increase in price and equilibrium shifts to B. The existence of positive profits attracts new firms to enter the market and supply curve shifts to S2. The new equilibrium is at C. Answer is C.
9) The long run cost curve is linear and horizontal (A). This is because even when supply increases, the cost in increases in same proportion.
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