If there is an increase in market demand in a perfectly competitive market, then in the short run
A)there will be no change in the demand curves faced by individual firms in the market.
B)the demand curves for firms will shift downward.
C)the demand curves for firms will become more elastic.
D)profits will rise.

Question

Quizplus · Accepted Answer

In the short run, the increase in market demand will lead to a higher price for the product, allowing firms to earn higher profits. This is because the firm's marginal revenue (which equals the increase in revenue from selling one more unit) will be greater than its marginal cost (the cost of producing one more unit) at the higher market price. Therefore, firms will increase their output to earn more profits until the price reaches the level where marginal revenue equals marginal cost. However, in the long run, new firms will enter the market, increasing the supply and pushing down the price to the minimum average total cost of firms, eliminating the excess profits.

If There Is an Increase in Market Demand in a Perfectly