-Refer to Figure 5.7. If short run equilibrium is at P₁Y₁: A) input prices will fall and output will rise in the long run. B) both input prices and output will fall in the long run. C) input prices will rise and output will fall in the long run. D) both input prices and output will rise in the long run.

Question

Quizplus · Accepted Answer

Given the equilibrium described, it suggests that the firm is making economic profits, which will attract new firms into the market in a competitive market scenario. This increases the demand for inputs, raising their prices, and the increased competition will lead to a decrease in output per firm.