Final answer:
In a long run competitive equilibrium, an increase in demand leads to initial higher prices but new firm entry increases supply, eventually returning price to the original equilibrium while the quantity increases.
Step-by-step explanation:
When we assume a market in long run competitive equilibrium experiences an increase in demand, the initial short-term effect is typically an increase in both price and quantity. However, because firms in competitive markets can enter and exit the market freely in the long run, the market supply curve is perfectly elastic. This results in new firms entering the market to take advantage of the higher profits that can be made due to increased demand.
As these new firms enter the market, supply increases to meet the new demand, which in turn brings the price back down to the original equilibrium level. Because there are now more firms producing goods, the market quantity increases. Therefore, after all market adjustments occur, the net change in market price and quantity after the market returns to long run equilibrium is that the price does not change and the quantity rises, making option A (price does not change and quantity rises) the correct answer to this question.