Questions: Why was the market no longer in long-run equilibrium? When the market price rose, this means that existing firms were able to make positive economic profits. Ah, I see. A higher market price means that the firms who were making hand sanitizer before the increase in demand were able to earn positive economic profits. But, initially, how did the market reach the new equilibrium at Q1*? There was an increase in supply as new firms entered the market in search of positive economic profits. There was an increase in the quantity supplied as existing firms increased the amount of hand sanitizer they were producing.

Why was the market no longer in long-run equilibrium?
When the market price rose, this means that existing firms were able to make positive economic profits.

Ah, I see. A higher market price means that the firms who were making hand sanitizer before the increase in demand were able to earn positive economic profits.

But, initially, how did the market reach the new equilibrium at Q1*?

There was an increase in supply as new firms entered the market in search of positive economic profits.

There was an increase in the quantity supplied as existing firms increased the amount of hand sanitizer they were producing.

Transcript text: newconnect.mheducation.com connect Micio- Economics of a Pandemic: The Perfectly Competitive Marke... Why was the market no longer in long-run equilibrium? When the market price rose, this means that existing firms were able to make positive economic profits. Cara, School Reporter Ah, I see. A higher market price means that the firms who were making hand sanitizer before the increase in demand were able to earn positive economic profits. But, initially, how did the market reach the new equilibrium at Q1*? There was an increase in supply as new firms entered the market in search of positive economic profits. There was an increase in the quantity supplied as existing firms increased the amount of hand sanitizer they were producing. Submit

Solution

Solution Steps

Step 1: Identify the Initial Condition

The market was initially not in long-run equilibrium due to an increase in demand for hand sanitizer, as shown by the shift from D1 to D2.

Step 2: Analyze the Impact of Increased Demand

The increase in demand (shift from D1 to D2) led to a higher market price. This higher price allowed existing firms to earn positive economic profits.

Step 3: Explain the Adjustment to New Equilibrium

The positive economic profits attracted new firms into the market, increasing the supply. Additionally, existing firms increased their production. This increase in supply moved the market towards a new equilibrium at Q1.

Final Answer

The market was not in long-run equilibrium because the increase in demand led to higher prices and positive economic profits, which attracted new firms and increased supply, eventually leading to a new equilibrium at Q1.

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