Question: Consider a constant cost competitive market consisting of identical firms producing pencils. Let the market be in a long run equilibrium, and each firm be producing 100 pencils a day. Suppose there is an increase in student population that leads to a sharp growth in demand for pencils. How many pencils a day will each firm be producing:

1. In the short run: (a) 100; (b) more than 100; (c) less than 100.
2. In the long run: (a) 100; (b) more than 100; (c) less than 100.

Explain your answers with short run and long run analysis with graphs.

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Solution: The downloadable solution consists of 2 pages
Deliverable: Word Document