Competitive Market Response To A Demand Increase
In a perfectly competitive market for handmade face masks, what are the short-run and long-run effects of an unexpected surge in demand?
A
Short-run prices increase, leading to entry and grants in the market, and in the long run, dynamic entry and exits ensure price returns to equilibrium.
B
Increased production costs induce short-term profits that continue into the long run as producers maintain higher price levels.
C
Demand shift creates lasting increases in market price and profits due to artisanal nature of face masks limiting entry of new firms.
D
Following the demand surge, producers decrease their prices due to increased competition from existing firms supplying excess capacity.
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