Assume that a perfectly competitive market in long-run equilibrium with firms earning zero profit ...

In a perfectly competitive market, in the long run equilibrium with firms earning zero profit experiences a sudden increase in demand for its good.

As a result, in the long run the rise in marginal revenue will cause firms to enter the market.

Hope that helps!

We got it right! This graph segment is pretty hectic. I know that the new short-run equilibrium as a result of the demand curve changing from D1 to D2. However, I'm not sure what to do for the curve line? (scratching my head)

Assume that a perfectly competitive market in long-run
equilibrium with firms earning zero profit experiences a
sudden increase in demand for its good.
As a result, in the long run, the rise in marginal revenue
will cause firms to enter the market.
The graph on the right shows the initial market equilibrium,
along with the new demand curve that resulted from the
sudden increase in demand.
How does a change in the number of firms in the market
impact the market equilibrium?
1 .) Using the point drawing tool, illustrate the new
short-run equilibrium as a result of the demand curve
changing from DI to D2.
2.) Using the 3-point curve drawing tool,show the long-run
effect of the change in the number of firms, as discussed
above. Label this curve 'S2'.
Carefully follow the instructions above and only draw the
required objects.

In long run, in perfect market competition, firms earn normal profit that is zero super normal profit.

When a sudden increase in demand takes place, it will increase the revenue and thus profit of existing firms in short run. That will lead to "rise" in marginal revenue.

Now as marginal revenue has increased and existing firms started earning super normal profit, it will attract potential firms to enter the market. Thus, new firms will "enter" the market and the new firms will continue enetering the market until the point where the number of firms increased to a level where their super normal profit gets zero because of distribution of profit every time a new firm enters.

Consider the following graph that depiccts the whole situation.

DD is original demand curve and SS is original demand curve. When demand increases, the demand curve shifts from DD to D'D'. To which new firms will eneter and will move the supply crve from SS to S'S' curve.

E1 is equilibrium before change in demand. E2 is equilibrium after change in demand and entering of new firms.



1) As we can see that because of change in numbers of firm sin market the equioibrium has changed from E1 to E2 wheer the price remains the same but the quantity increases.

2) Short ruun equilibrium is that equilibrium that occurs after changing in demand but before enetring of new firms wheer firm earn super normal profit. It is shown as Es in the following graph