The long-run supply curve for a competitive industry a. may be horizontal if entry into the industry lowers average total cost. b. may be upward-sloping if higher-cost firms enter the industry. c. will be horizontal if there is free entry into the industry. d. will be upward-sloping if there are barriers to entry into the industry.

Question

Business

Mayer

19 June, 10:11

The long-run supply curve for a competitive industry a. may be horizontal if entry into the industry lowers average total cost. b. may be upward-sloping if higher-cost firms enter the industry. c. will be horizontal if there is free entry into the industry. d. will be upward-sloping if there are barriers to entry into the industry.

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Taffy · Answer 1

b. may be upward-sloping if higher-cost firms enter the industry.

Explanation:

The long-run supply curve under conditions of perfect competition can be horizontal, upward sloping or downward sloping even when there are free entry of firms.

If entry of firms lower the average total cost, industry is decreasing cost industry. If entry of firms increases the average total cost, industry is increasing cost industry

If entry of firms does not change the average total cost, industry is constant cost industry.

Thus, the correct answer is b.