Question

Suppose a competitive industry faces an increase in demand​ (i.e., the demand curve shifts​ upward).

Answer 1

Answer:

Answer for questions 1 and 3:

If the total demand for a product increases, the demand curve will shift to the right, which will result in a price increase at every quantity demanded. Since the price of the product will increase, the suppliers will be making a higher economic profit. this in turn will make existing firms increase their total output, and other firms enter the market and start their own production. You must remember that on a competitive market with no entry barriers, the competing firms have $0 economic profit (not the same as accounting profit).  

Answer for question 2:

If the government imposes a price ceiling and it is lower than equilibrium quantity, then the firms' profits will decrease, which in turn will reduce their incentive to increase their output and it will also decrease the number of new firms entering the market. This will produce a deadweight loss resulting from a shortage of products that which will negatively affect customers.