(a) Describe and illustrate a perfectly competitive industry in long-run equilibrium.

(b) Now suppose that the demand for the industry's product suddenly and unexpectedly increases. Describe and illustrate the new short-run equilibrium that will result.

(c) If an incumbent firm is earning profits in the short-run, should it increase its productive capacity by acquiring additional capital (e.g., a larger factory) to try to earn even greater profits?