If all existing firms and all potential firms have the same cost curves, there are no inputs in limited quantities, and the market is characterized by free entry and exit, then the long-run market supply curve
A)is horizontal and equal to the minimum of long-run marginal cost for each firm.
B)must slope downward.
C)must slope upward.
D)is horizontal and equal to the minimum of long-run average cost for each firm.

Question

Quizplus · Accepted Answer

In a perfectly competitive market with free entry and exit and firms having the same cost curves, the long-run market supply curve is determined by the minimum of long-run average cost for each firm. This is because in the long run, firms are able to adjust all inputs and achieve their minimum efficient scale, which corresponds to the point of minimum average cost. Therefore, the long-run market supply curve is horizontal at this minimum point of long-run average cost.

If All Existing Firms and All Potential Firms Have the Same