When a competitive market experiences an increase in demand that increases production costs for existing firms and potential new entrants, which of the following is most likely to arise?
A)The long-run market supply curve will be upward sloping.
B)The condition of free entry into the market will be violated.
C)Producer profits will fall in the long run.
D)The long-run market supply curve will be horizontal as new firms enter and drive the price downward.

Question

Quizplus · Accepted Answer

In a competitive market, if an increase in demand raises production costs, the long-run market supply curve will be upward sloping because higher costs mean that prices must rise to cover these costs, even as new firms enter the market.

When a Competitive Market Experiences an Increase in Demand That