Illustrate and discuss the adjustment mechanism in a perfectly competitive market when there is an increase in demand. Assume that the market is in equilibrium and then some external factor changes that causes demand to increase. Your diagrams should include two graphs - one showing representative Örmís total revenue and total cost and one showing the market supply (short and long run) and demand curves. Both graphs should illustrate the changes in price, quantity, supply (short and long run) and demand. Your discussion should include:
-A description of the initial equilibrium point,
-The firm's total revenue and total cost at the initial equilibrium point. Show
If the firm is breaking even, making a profit, or taking a loss.
-A description of the new short run equilibrium point after demand has increased.
-The firm's total revenue and total cost at the short run equilibrium point.
Show if the firm is breaking even, making a profit, or taking a loss.
-Answer how firms respond to the market signals (depends on how you answer the previous question)
-How the market and firm adjust as the result of exit or entry of firms. . .
-A statement detailing when the market will stop adjusting.