Asked by David Garcia on Jul 15, 2024
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Assume a purely competitive increasing-cost industry is initially in long-run equilibrium, producing 10 million units at a market price of $5.00. Suppose that an increase in consumer demand occurs. After all economic adjustments have been completed, which output and price combination is most likely to occur?
A) 11 units at a price of $4.75.
B) 12 units at a price of $5.50.
C) 9.5 units at a price of $4.50.
D) 9 units at a price of $5.25.
Increasing-cost Industry
An increasing-cost industry is one in which the entry of new firms raises the average costs of production, often due to limited resources or increasing prices for inputs.
Consumer Demand
The willingness and ability of consumers to purchase goods and services at different prices, influencing market dynamics and prices.
Market Price
The price of a good or service determined by supply and demand in a competitive market.
- Explain the connection between market demand, financial gains or losses, and sectoral changes over an extended period.
- Examine how consumer demand influences purely competitive markets and their resulting state of balance.
Verified Answer
Learning Objectives
- Explain the connection between market demand, financial gains or losses, and sectoral changes over an extended period.
- Examine how consumer demand influences purely competitive markets and their resulting state of balance.
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