Question 1

An industry with a ________ long-run supply curve is called a constant-cost industry.
A) horizontal
B) positive sloping
C) negative sloping
D) vertical

Accepted Answer

A constant-cost industry is characterized by a horizontal long-run supply curve, indicating that the per-unit cost of production remains constant as the total output of the industry changes.

Question 2

An industry with a ________ long-run supply curve is called an increasing-cost industry.
A) negative sloping
B) horizontal
C) positive sloping
D) backward bending

Accepted Answer

An increasing-cost industry is characterized by a positive sloping long-run supply curve, indicating that as output increases, the costs of production also increase, leading to higher prices.

Question 3

Firms are making profits in a decreasing-cost industry. Which of the following statements describes what will happen in the long run?
A) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift down.
B) More firms will enter this industry, causing the industry supply schedule to shift to the right and the LRAC curve facing firms to shift up.
C) Firms will exit this industry, causing the industry supply schedule to shift to the right and the LRAC curve to shift down.
D) Firms will exit this industry, causing the industry supply schedule to shift to the left and the LRAC curve to shift down.

Accepted Answer

In a decreasing-cost industry, as more firms enter the industry due to profits, the increased competition and potential economies of scale cause the industry supply curve to shift right (increasing supply) and the long-run average cost (LRAC) curve for firms to shift downwards, indicating lower costs per unit.

Quiz 9: Long-Run Costs and Output Decisions

An industry with a ________ long-run supply curve is called a constant-cost industry.

An industry with a ________ long-run supply curve is called an increasing-cost industry.

Firms are making profits in a decreasing-cost industry. Which of the following statements describes what will happen in the long run?