If a subsidy is granted to perfectly competitive firms that provide external benefits to society, the firm's marginal cost curve will shift ________ and the industry supply curve will shift to the ________.
A) down; left
B) down; right
C) up; right
D) up; left

Question

Quizplus · Accepted Answer

When a subsidy is granted to firms, it effectively lowers their cost of production, which is represented by a downward shift in the marginal cost curve. Since the firms can now produce at a lower cost, they are willing to supply more at each price level, which shifts the industry supply curve to the right.

If a Subsidy Is Granted to Perfectly Competitive Firms That