A sudden increase in the market demand in a competitive industry leads to
A)Losses in the short-run and average profits in the long-run
B)Above average profits in the short-run and average profits in the long-run
C)New firms being attracted to the industry
D)Both B&C

Question

​A sudden increase in the market demand in a competitive industry leads to
A)​Losses in the short-run and average profits in the long-run
B)Above average profits in the short-run and average profits in the long-run
C)New firms being attracted to the industry
D)​Both B&C

Quizplus · Accepted Answer

A sudden increase in market demand in a competitive industry will lead to above average profits in the short-run as existing firms can raise prices and increase output. This will attract new firms to the industry, leading to increased competition and lower profits in the long-run, but average profits will still be achievable. Therefore, both options B and C are true.

​A Sudden Increase in the Market Demand in a Competitive

A Sudden Increase in the Market Demand in a Competitive