Given below is a perfectly competitive firm under long run equilibrium.AC and MC represent the average cost and the marginal cost incurred by the firm.P₀ is the equilibrium price level while Q₀ is the equilibrium output.

-Refer to Figure 5-2.What will be the impact of the rise in raw materials cost on the long-run supply curve of this industry?

Question

Given below is a perfectly competitive firm under long run equilibrium.AC and MC represent the average cost and the marginal cost incurred by the firm.P₀ is the equilibrium price level while Q₀ is the equilibrium output.

-Refer to Figure 5-2.What will be the impact of the rise in raw materials cost on the long-run supply curve of this industry?

Quizplus · Accepted Answer

The rise in raw materials cost will increase the firm's average cost and marginal cost curves. As a result, the firm's profit will decrease, and some firms will exit the industry. This will lead to a reduction in industry output and an increase in price. Therefore, the long-run supply curve will shift upward to reflect the higher cost of production for the remaining firms.

Given Below Is a Perfectly Competitive Firm Under Long Run