|Question||This question is based on the section The Long-Run Industry Supply Curve found on this book’s MyEconLab (www.myeconlab.com). A major theme of this chapter is the role that free entry and exit play in determining a competitive industry’s long-run equilibrium. Keeping this theme in mind, consider the following statement:
In Industry X, demand and supply do determine price in the short run, but in the long run, only supply matters.
a. Assuming that Industry X is a constant-cost industry, use a demand-and-supply diagram to illustrate why the statement is exactly correct.
b. Now, assuming that Industry X is an increasing-cost industry, show in a demand-and-supply diagram why the statement is not quite correct.