Question

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.

Please explain answer.

Answer 1

The long-run supply curve for a competitive industry

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

In the perfect competition,the long run is where the firms make zero profits. In the long run,when the new firms enter the factor prices increases as their demand will increase which increases the costs.It will result in an upward shift in the long run average cost.The higher marginal cost increase the price at which the firms break even which increases the price and shifts the supply curve to the right which will result in an upward sloping supply curve.