If the firms in a market have constant returns to scale internally while there are external economies of scale for the industry, a firm's long-run supply curve will be ________ and the long-run market supply curve will be ________.
A) downward sloping; downward sloping
B) upward sloping; horizontal
C) horizontal; downward sloping
D) downward sloping; horizontal
E) upward sloping; downward sloping

Question

Quizplus · Accepted Answer

Constant returns to scale internally mean a firm's costs do not change with output, suggesting a horizontal long-run supply curve for the firm. External economies of scale for the industry imply that as the industry expands, the costs per unit for firms decrease, leading to a downward-sloping long-run market supply curve.

If the Firms in a Market Have Constant Returns to Scale