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Suppose a competitive market is comprised of firms that face identical cost curves. The firm's experience an increase in demand that results in positive profits for the firms. Which of the following events are then most likely to occur?i. New firms will enter the market. ii. In the short run, price will rise; in the long run, price will rise further. iii. In the long run, all firms will be producing at their efficient scale. A. (i) and (ii) onlyB. (i) and (iii) onlyC. (ii) and (iii) onlyD. (i), (ii) and (iii)

Respuesta :

Answer: Option (B) is correct.

Explanation:

The following events are mostly likely to occur:

(1) New firms will enter the market.

(3) In the long run, all firms will be producing at their efficient scale.

If in a perfectly competitive market, firms observing that there is an increase in the demand for the goods, as a result this will increase the price of the goods in the short run.

But, there are some new firms enter into the market. This will shift the supply curve rightwards as a result there is a reduction in the price level in the long run.

Hence, all the firms are producing at a efficient level of production in the long run.

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