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    could someone please help me with this question?

    "With the aid of a linked diagram of a perfectly competitive firm AND industry, show and explain how profits are generated in the short run when the industry is faced with a permanent increase in demand for its product."

    could someone help me with the explanation part, the diagram part isn't necessary
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    Demand shifts out > Equilibrium price increases in the short run > AR=MR increases > Abnormal profit
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    (Original post by powderpuffgirl)
    could someone please help me with this question?

    "With the aid of a linked diagram of a perfectly competitive firm AND industry, show and explain how profits are generated in the short run when the industry is faced with a permanent increase in demand for its product."

    could someone help me with the explanation part, the diagram part isn't necessary
    If there is sufficient demand, in the short-run the perfectly competitive firm will be making supernormal profits. However, in the long run, other firms will observe these supernormal profits and join the industry and everyone will then be making normal profits.

    As for an explanation, you could say that due to less suppliers, the price is higher and crucially it is higher than the firms average cost, allowing for profit.
 
 
 
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