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)Demand creating supply

Question

Quizplus · Accepted Answer

A sudden increase in market demand signals an opportunity for existing firms to increase their profits, which attracts new firms to join the industry to get a share of the profits. This increase in the number of firms in the industry will eventually lead to average profits in the long-run as the market becomes more competitive. Therefore, option C is the best choice.

A Sudden Increase in the Market Demand in a Competitive