Suppose that a competitive market is initially in equilibrium. Then demand increases. If some resources used in production are not available in sufficient quantities for entering firms,
A)the long-run market supply curve will be upward sloping.
B)the long-run market supply curve will be perfectly elastic.
C)in the long run firms will suffer economic losses, leading them to exit the industry.
D)the number of firms will decrease, and the market will become a monopoly.

Question

Quizplus · Accepted Answer

If some resources used in production are not available in sufficient quantities for entering firms, the long-run market supply curve will be upward sloping because firms will have to pay more for those scarce resources, leading to higher costs and higher prices. This will result in some consumers being priced out of the market, decreasing quantity demanded and causing firms to reduce production. In the long run, new firms may enter the market if there are still profits to be made, but the higher costs of production will limit the number of firms and result in a higher equilibrium price.

Suppose That a Competitive Market Is Initially in Equilibrium