Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________.
A) perfectly inelastic; fixed costs
B) perfectly inelastic; zero
C) perfectly elastic; fixed costs
D) perfectly elastic; zero

Question

Quizplus · Accepted Answer

When all firms have constant marginal costs that are the same for each firm, the market supply curve is perfectly elastic. This means that firms are willing to supply any quantity at a specific price. Producer surplus equals zero because with constant marginal costs equal for each firm, the price received by the firms equals their marginal cost, leaving no surplus.

Suppose All Firms Have Constant Marginal Costs That Are the Same