Question

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium and that an increase in consumer demand occurs. After all economic adjustments have been completed, product price will beanswer choicesA) lower, but total output will be larger than originally.B) higher, and total output will be larger than originally.C) lower, and total output will be smaller than originally.D) higher, but total output will be smaller than originally.

Answer 1

Answer:

The correct answer is option B.

Explanation:

An increasing-cost industry is that kind of industry where the cost of production increases as new firms enter the industry. It generally happens as the industry expands, the cost of inputs increases, because the input demand is increasing as well.  

An increasing cost industry has an upward sloping long-run supply curve. So when the demand increases, the new demand curve will intersect the upward sloping demand curve at a higher point. This will cause both the product price as well as the output level to increase.