The following figure shows equilibrium at the industry and firm level.Figure 10.6

In the figure,
S₁, S₂, S₃ are the market supply curves.D₁ and D₂ are the market demand curves.MC is the marginal cost curve of the firm.MR₁ and MR₂ are the marginal revenue curves of the firm.ATC is the average-total-cost curve of the firm.
-On August 5, 2003, a tragic fire destroyed a large Jim Beam whiskey factory in Kentucky. Assume that the U.S. market for whiskey is perfectly competitive, and that the market was originally in long run equilibrium. What would be the effects of such an incident?
A)An increase in supply would cause a reduction in price, which would then lead to entry of firms.
B)A decrease in supply would cause an increase in price, which would then lead to entry of firms.`
C)An increase in supply would cause an increase in price, which would then lead to entry of firms
D)A decrease in supply would cause an increase in price, which would then lead to exit of firms.
E)Price of the whiskey would remain unchanged and the existing firms would continue to earn zero economic profit.

The Figure Given Below Shows the Demand and Cost Curves

Multiple Choice

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