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Given the demand & supply equation for perfect competitive industry, elucidate the long run adjustment in the supply curve for increasing cost, decreasing cost and constant cost industry due to the shift in the demand curve.

Initially a perfectly competitive industry is in long-run equilibrium and the equations for the demand and supply curves are:

PD1 = 80 - ( 1/10)QD1

PS1 = 80 - ( 1/10)QS1

Now there is an increase in the demand for the product and the demand curve shifts to:

PD2 = 80 - ( 1/10)QD2

After the long-run adjustment which of the following shifts I the supply curve illustrates an increasing, decreasing or constant cost industry?

a.PS2 = 24 + (1/10)QS2

b.PS3 = 10 + ( 1/10)QS3

c. PS4 = 10 + ( 1/10)QS4

In each case tell why the demand curve shifted by more , less, or the same amount as the supply curve.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M923096

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