Question

Assume a perfectly competitive industry making peanuts is in long-run equilibrium. The price per pound of peanuts is $2. Next, assume that the demand for peanuts increases in the short run, and the price rises to $4 per pound. If this is a constant cost industry, what price per pound should we expect in the long-run

Answer 1

Answer:

The price of the item in long run equilibrium will be the same i.e $ 2 per unit

Explanation:

Given

The equilibrium price in the long run = $ 2 per unit

The price of the item in long run equilibrium will be the same i.e $ 2 per unit

The increase of price in short run will not have much impact on the Average variable cost and hence in long run the price will remain constant.