Homework Help is Here – Start Your Trial Now!
Business
Economics
A constant cost perfectly competitive market is in long run equilibrium. At present, there are 1,000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose? A) The average total cost will be lower than it was before the price increase because of economies of scale. B) The average total cost will be the same as it was before the price increase. C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. D) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices.

A constant cost perfectly competitive market is in long run equilibrium. At present, there are 1,000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose? A) The average total cost will be lower than it was before the price increase because of economies of scale. B) The average total cost will be the same as it was before the price increase. C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. D) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question

Draw a graph to explain as well

Note:-

Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.
Answer completely.
You will get up vote for sure.

A constant cost perfectly competitive market is in long run equilibrium. At present, there are 1,000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose? A) The average total cost will be lower than it was before the price increase because of economies of scale. B) The average total cost will be the same as it was before the price increase. C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. D) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices.
Transcribed Image Text:A constant cost perfectly competitive market is in long run equilibrium. At present, there are 1,000 firms each producing 400 units of output. The price of the good is $60. Now suppose there is a sudden increase in demand for the industry's product which causes the price of the good to rise to $64. In the new long run equilibrium, how will the average total cost of producing the good compare to what it was before the price of the good rose? A) The average total cost will be lower than it was before the price increase because of economies of scale. B) The average total cost will be the same as it was before the price increase. C) The average total cost will be higher than it was before the price increase because of diseconomies of scale arising from the increased demand. D) The average total cost will be higher than it was before the price increase since the increase in demand will drive up input prices.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Total Revenue and Total Cost
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS