A shift in demand curve has a larger effect on price and smaller effect on quantity when the number of firms is fixed compared to the situation when free entry and exits is permitted. Explain.
The above figure depicts both the cases when the number of firms is fixed (in short run) and when the number of firms is not fixed (in long run). P = min AC represents the long run price line; D1D1 and D2D2 represents the demand in the short run and the long run respectively. The point E1 represents the initial equilibrium, where the demand and the supply intersect each other. Let us suppose that the demand curve shifts, assuming that the number of firms is fixed. Now, the new equilibrium will be at Es (as it is short run equilibrium), where the supply curve and the demand curve D2D2 intersect each other. The equilibrium price is Ps and equilibrium quantity is On the other hand,
under the assumption of free entry and exit, an increase in demand will shift the demand curve rightwards to D2D2 . The new equilibrium will be at E2 (as it is a long run equilibrium) with the equilibrium price P = min AC and equilibrium quantity qL Therefore, on comparing both the cases,b we find that when the firms are given the freedom of entry and exit, the equilibrium price remains the same. The price is lower than that of the short run equilibrium price (Ps ); whereas, the long run equilibrium quantity (qL ) is more than that of the short run equilibrium quantity (qs). Similarly, for the leftward demand shift, it can be found that the short run equilibrium price (Ps ) is lower than the long run equilibrium
price and the short run equilibrium quantity (qs ) in less than the long run equilibrium quantity (Lq)
NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:
This question is important because it tests key concepts from the NCERT syllabus and is frequently asked in CBSE exams.
This question is based on core NCERT concepts explained in the chapter and should be revised thoroughly before exams.
Students often lose marks by skipping steps, writing incomplete explanations, or misunderstanding keywords used in the question.
The above figure depicts both the cases when the number of firms is fixed (in short run) and when the number of firms is not fixed (in long run). P = min AC represents the long run price line; D1D1 and D2D2 represents th...
Step-by-step explanation:
• The above figure depicts both the cases when the number of firms is fixed (in short run) and when the number of firms is not fixed (in long run)
• P = min AC represents the long run price line; D1D1 and D2D2 represents the demand in the short run and the long run respectively
• The point E1 represents the initial equilibrium, where the demand and the supply intersect each other
• Let us suppose that the demand curve shifts, assuming that the number of firms is fixed
• Now, the new equilibrium will be at Es (as it is short run equilibrium), where the supply curve and the demand curve D2D2 intersect each other
Stay updated with our latest educational content and study tips
Pay upfront, or pay off less and over time? The truth depends on four factors most consumers will never compare at the same time: the interest rate on the house loan, the interest rate on the savings account, the rate of home price appreciation, and the cost of renting the home until you actually buy … Read more
Read More
Thirty is when the question starts to get raised and you’re able to do something because you know you have the experience—you know you have the responsibility. Here are some ways to consider the choice based on a realistic assessment without idealizing either aspect. Restlessness is one of those things that appears in your early … Read more
Read More
It’s not about starting over if you took a break to care for children, take care of yourself, be healthy or for any other reason. This is a realistic strategy for the recovery of skills, selection of the right job, and overcoming the resume problem. One year, three years or 10 years of a career … Read more
Read More
There’s no need to score 95% or achieve a JEE/NEET rank. You don’t need to score 95% or rank in JEE/NEET to build a solid career. A candid and pragmatic guide to the routes that actually work for students who have an average mark and what to do when faced with the options. If … Read more
Read More
Student Discussion
Be the first to comment.
ADD NEW COMMENT