Answer to Question #321109 in Microeconomics for Roo

Question

Derive the long run supply curve of a constant cost perfectly competitive industry

Answer 1

The supply curve indicates the relationship between quantity supplied and market price. In perfect competition, the firm's marginal cost curve segment that is above the average variable cost (AVC) curve is the price-taking firm's supply curve. The supply curve in the industry will slope upwards from left to right. An indication of an increase in prices, and raise in quantity supplied, is that the factor prices remain constant as the industry's output expands.