Figure 14-11
-Refer to Figure 14-11.If the figure in panel (a)reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,the figure in panel (b)most likely reflects

Question

Figure 14-11  
-Refer to Figure 14-11.If the figure in panel (a)reflects the long-run equilibrium of a profit-maximizing firm in a competitive market,the figure in panel (b)most likely reflects

Quizplus · Accepted Answer

Panel (b) shows a perfectly elastic long-run market supply curve, where firms can enter or exit the market without affecting the market price. This is because the market is in a long-run equilibrium, with firms earning only normal profits. If firms earn above-normal profits in the short run, more firms will enter the market in the long run, shifting the supply curve to the right until profits return to normal. Similarly, if firms earn below-normal profits in the short run, some firms will exit the market in the long run, shifting the supply curve to the left until profits return to normal. Thus, in the long run, the market supply curve is perfectly elastic, as shown in panel (b).