Assume that there is an outward shift in the demand for chairs.Which of the following best describes the short-run response within the competitive market for chairs?
A)Existing firms and new firms will expand output by using more of all inputs.
B)Existing firms will keep fixed inputs unchanged and expand output using the variable inputs.
C)Existing firms will increase their profits by producing the same output at a higher price.
D)Existing firms cannot increase production in the short-run so the price of chairs will increase.

Question

Quizplus · Accepted Answer

In the short-run, existing firms will keep their fixed inputs unchanged but expand output using variable inputs. This means that they will increase their utilization of inputs such as labor and raw materials to produce more chairs. This will result in an increase in the quantity of chairs supplied, but not an increase in the number of firms in the market or the size of their plants. As a result, the price of chairs will increase until the market reaches a new equilibrium.

Assume That There Is an Outward Shift in the Demand