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In the long run under competitive markets, the supply curve of a product will be completely...

In the long run under competitive markets, the supply curve of a product will be completely elastic. How fixed costs may enter into the supply function? Explain your answer.

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Answer #1

Yes the supply is perfectly elastic. Price of goods increases , which attracts new entrants and it eventually lowers the prices. But it will decrease the profit, and will force the firm to leave the sector. So fixed costs affect the entry and long run (even breaks) prices.
Firms produce only at minimum average cost in the long run. So in this situation, long run marginal cost, marginal revenue, average revenue and long run average cost are equal. The firms enjoy only minimum profits.

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