Question

In the long run in a competitive constant-cost industry

A. A firm’s supply curve is upward sloping but the industry supply curve is perfectly elastic at the minimum of AVC.

B. firm’s supply curve is upward sloping but the industry supply curve is perfectly elastic at the minimum of ATC.

C. Both the industry and a firm’s supply curve are perfectly elastic at the minimum of ATC.

D. The supply curve for a firm is perfectly elastic at the minimum of average total cost and the industry supply curve is the horizontal summation of the upward sloping sections of the MC curves (above the minimum of ATC) of firms in the industry.

E. none of the above

Answer 1

D. The supply curve for a firm is perfectly elastic at the minimum of average total cost and the industry suppy curve is the horizontal summation of the upward sloping sections of the MC curve (above the minimum of ATC ) of firms in the industry.

Explanation:

In the long run in a competitive constant-cost industry,the supply curve for a firm is perfectly elastic at the minimum of average total cost and the industry suppy curve is the horizontal summation of the upward sloping sections of the MC curve (above the minimum of ATC) of firms in the industry.In a competitive constant-cost industry,the supply curve is horizontal line as in this type of industry,cost remains constant or there is no change in cost of firms due to either entry or exit of new firms.There is no change in average cost of the output production and it remains same in constant cost industry with the expansion or contraction of the industry.