- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 6. Perfect Competition
CFA Practice Question
Assume that a perfectly competitive industry is in long-run equilibrium. If demand increases, which of the following will occur?
II. Firms will produce more output.
III. Firms will increase their profits.
IV. The industry will not be in long-run equilibrium.
I. Market price will increase.
II. Firms will produce more output.
III. Firms will increase their profits.
IV. The industry will not be in long-run equilibrium.
Correct Answer: I, II, III and IV
An increase in demand increases price, and thus the output at which price equals marginal cost will be greater. Firms expand output and increase profits, but the industry is not in long-run equilibrium, because given enough time, new firms may wish to enter the market, attracted by higher profits.
User Contributed Comments 5
| User | Comment |
|---|---|
| choas69 | very good question. |
| xemex131 | the demand curve for a perfectly competitive market is a horizontal line, increase in demand cannot lead to a price increase |
| abinavas | I am confused now with the Market Price Increase in Perfect Competition? Insights, please? |
| sshetty2 | The horizontal demand curve shifts upward due to an increase in demand meaning that the price on the y axis goes up |
| EEEEvia | I thought the price will not be affected |