Suppose that,in the long run,a dairy's variable costs are (where Q is the number of gallons of milk produced each day),its marginal cost is and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the long run market supply curve?
A) Vertical at 5 gallons per day
B) Horizontal at $20 per gallon
C) Horizontal at $50 per gallon
D) Horizontal at $100 per gallon

Question

Suppose that,in the long run,a dairy's variable costs are  (where Q is the number of gallons of milk produced each day),its marginal cost is  and there is an avoidable fixed cost of $50 per day.In the long run there is free entry into the market.What is the long run market supply curve?
A) Vertical at 5 gallons per day 
B) Horizontal at $20 per gallon 
C) Horizontal at $50 per gallon 
D) Horizontal at $100 per gallon

Quizplus · Accepted Answer

In the long run, with free entry, firms will enter the market until price equals marginal cost. 
Since the only fixed cost is avoidable, it will not affect the long run equilibrium price. 
Therefore, the long run market supply curve will be horizontal at the point where marginal cost equals price, which is given to be $20 per gallon.

Suppose That,in the Long Run,a Dairy's Variable Costs Are