Respuesta :
An increase in demand generates economic profit in the short run and encourages entry in the long run in a perfectly competitive market in long-run equilibrium; a decrease in demand generates economic losses (negative economic profits) in the short run & forces some businesses to leave the industry in the long run.
Demand increases in a perfectly competitive market:
Explain how the price of the good, as well as the output and profit of each firm, vary in the short run under perfect competition when market demand rises. When consumer demand for a product increases, both its market price and availability rise.
When marginal cost equals price, a firm is in perfect competition equilibrium. However, in addition to marginal cost and price being equal, the price must also be equal to average cost for the firm to be in long-run equilibrium.
Assume that there are no economic gains being made and that the completely competitive cotton-growing business is in long-term equilibrium. Businesses will monopolize the market if demand rises.
When there is perfect competition, the market will be in an equilibrium when supply and demand are equal. At this moment, a firm's pricing will be established. Demand will have an impact on equilibrium in the short term. Demand and supply for a commodity will eventually have an impact on the equilibrium under perfect competition.
Learn more about competitive cotton-growing industry:
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