Question

With identical firms, constant input prices, and all the other characteristics of a competitive market Select one:

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.

Answer 1

The answer is C- a shift in demand has no effect on the long-run average cost, resulting in change in equilibrium quantity but not price

Competition and “perfect competition” Competition means that there are two or more firms in the same business. Economists use the term “perfect competition” to describe an idea market structure. In a perfectly competitive market, firms are price-takers. If each firm produces a small share of the total market output and its output is identical, then each firm is a price taker. The firm cannot affect the “market price.” This simply says that firm has no power to raise its price. If it does so, the firm is unable to sell output because consumers will buy goods from others. The firm’s demand curve is horizontal. If price is set at p, then firm can sell as much as it wants; if above p, because of infinitely elastic demand, a small increase in price will cause its demand to fall to 0; Firm is not willing to set price below p either because he will lose profit by doing so.