If a perfectly competitive industry is characterized by constant costs in the long run, its long-run:

Question

Quizplus · Accepted Answer

If a perfectly competitive industry is characterized by constant costs in the long run, it means that firms in the industry are producing at their minimum efficient scale, which leads to a flat and horizontal long-run industry supply curve. This is because, in the long run, firms can enter or exit the industry freely, causing the market price to adjust until all firms earn zero economic profit. As a result, the industry supply curve becomes perfectly elastic and horizontal at the minimum average total cost of production. Therefore, choice C is the correct answer.

Option A is incorrect because the marginal revenue curve for a perfectly competitive firm is horizontal, not vertical, as it sells its output at the prevailing market price, which remains constant. Option B is also incorrect because, in the long run, the marginal cost curve for a firm in a constant-cost industry is equal to its average total cost curve, which is U-shaped, and not vertical. Option D is also incorrect since the constant cost assumption means that the average fixed cost remains the same at all levels of production, but it does not indicate whether it is horizontal or not.

If a Perfectly Competitive Industry Is Characterized by Constant Costs