Suppose the required assumptions for a perfectly elastic long run supply curve hold for the widget industry. Each widget firm has the cost structure illustrated in the left graph. The right graph illustrates two different possible demand curves for widgets, D1 and D2. Suppose the industry is initially in long-run equilibrium at demand D1 and the number of firms equals the number in the previous question. Demand then shifts to D2. In the short-run, the equilibrium price will be

$22

$15

$20

$18

$26

Transcribed Image Text:

CA 654321 NNNNNN 654321ORANSF43210 ATC X AVC MC 0 1 2 3 4 5 6 7 8 9 10 11 12 ANNNNNN 654321CN CONTORNOSTANTO 0 300 600 900 1200 D2 D1 O 1500 1800 2100 2400 CA 654321 NNNNNN 654321ORANSF43210 ATC X AVC MC 0 1 2 3 4 5 6 7 8 9 10 11 12 ANNNNNN 654321CN CONTORNOSTANTO 0 300 600 900 1200 D2 D1 O 1500 1800 2100 2400

Answer rating: 100% (QA)

Number of firms in initial long run equilibrium9001090 The D2 shows Decrease in dem... View the full answer