Industry is currently in long-run equilibrium

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Suppose the restaurant industry is perfectly competitive. All producers have identical cost curves and the industry is currently in long-run equilibrium, with each producer producing at its minimum long-run average total cost of $8.

a. If there is a sudden increase in demand for restaurant meals, what will happen to the price of a restaurant meal? How will individual firms respond to the change in price? Will there be entry or exit from the industry? Explain.

b. In the market as a whole, will the change in the equilibrium quantity be greater in the short-run or the long-run? Explain.

c. Will the change in output on the part of individual firms be greater in the short-run or the long- run? Explain and reconcile your answer to part (b).

Reference no: EM13770429

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