Assume the short-run average total cost for a perfectly competitive industry decreases as the output of the industry expands. In the long run, the industry supply curve will:
A) have a positive slope.
B) have a negative slope.
C) be perfectly horizontal.
D) be perfectly vertical.

Question

Quizplus · Accepted Answer

In the short-run, the average total cost decreases as the output of the industry expands, implying that marginal cost is less than average total cost. Thus, firms are earning profits and new firms will enter the industry in the long-run. As new firms enter, the supply of the industry increases, causing the market price to fall until it reaches the minimum of the average total cost curve. Since the average total cost curve is decreasing, the long-run supply curve will have a negative slope.

Assume the Short-Run Average Total Cost for a Perfectly Competitive