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Author Question: In perfect competition, when market demand increases, explain how the price of the good and the ... (Read 32 times)

bobbysung

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on: Jun 29, 2018
In perfect competition, when market demand increases, explain how the price of the good and the output and profit of each firm changes in the short run.
 
  What will be an ideal response?

Question 2

Refer to Table 2-17. What is Lucy's opportunity cost of making a wagon?
 
  A) 3 wagons B) 3/4 of a wagon C) 1 1/3 tricycles D) 2 tricycles


cegalasso

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Reply #1 on: Jun 29, 2018
Answer to Question 1

When market demand increases, the market price of the good rises, and the market quantity increases. Because price equals marginal revenue, the rise in the price means marginal revenue rises. As a result, each firm moves up its marginal cost curve and increases the quantity it produces. The firm's economic profit rises (or its economic loss decreases). If the firm had been making a normal profit before the increase in demand, after the increase the firm makes an economic profit.

Answer to Question 2

C


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