Suppose that for each firm in the competitive market for potatoes,long-run average cost is minimized at $0.20 per pound when 500 pounds are grown.If the long-run supply curve is horizontal,then
A) some firms will enjoy long-run profits because they operate at minimum average cost.
B) the long-run price will be $0.20 per pound.
C) each consumer will purchase $100 worth of potatoes.
D) the long-run price will be set just above $0.20 per pound.

Question

Quizplus · Accepted Answer

If the long-run average cost is minimized at $0.20 per pound when 500 pounds are grown and the long-run supply curve is horizontal, all firms will be able to produce potatoes at a cost of $0.20 per pound. Therefore, the long-run price will also be $0.20 per pound, as there is no reason for the market price to be higher than the cost of production for all firms.

Suppose That for Each Firm in the Competitive Market for Potatoes,long-Run