Suppose that the restaurant industry is perfectly competitive. All producers have identical cost curves, and the industry is currently in long-run equilibrium, with each producer producing at its minimum long-run average total cost of $8.
a. If there is a sudden increase in demand for restaurant meals, what will happen to the price of restaurant meals? How will individual firms respond to the change in price? Will there be entry into or exit from the industry? Explain.
b. In the market as a whole, will the change in the equilibrium quantity be greater in the short run or the long run? Explain.
c. Will the change in output on the part of individual firms be greater in the short run or the long run? Explain and reconcile your answer with your answer to part (b).