Assume the short-run average total cost for a perfectly competitive industry increases as the output of the industry expands. In the long run, the industry supply curve will:
A) have a positive slope.
B) have a negative slope.
C) be perfectly horizontal.
D) be perfectly vertical.

Question

Quizplus · Accepted Answer

In the short run, the industry's average total cost increases as output expands, which means that marginal cost is increasing. As a result, the industry's short-run supply curve slopes upward. In the long run, however, firms are able to adjust their inputs, and new firms can enter or existing firms can exit the industry. If the industry's average total cost is increasing as output expands, it suggests that the industry's factor prices are increasing, and firms are facing increasing costs. In the long run, this will lead to some firms exiting the industry, which will cause the industry's supply curve to shift to the left. As a result, the industry supply curve will have a positive slope.

Assume the Short-Run Average Total Cost for a Perfectly Competitive