Question

Explain why the industry supply curve is not the long-run industry marginal cost curve. The industry supply curve is not the long-run industry marginal cost curve because O A. production will only occur along the long-run marginal cost curve for prices above average variable cost. O B. at prices above the minimum long-run average cost of production, firms will exit the industry. O C. production will only occur along the long-run marginal cost curve when profits are earned. O D. firms cannot change fixed inputs in the long run, resulting in an industry supply curve that equals a short-run marginal cost curve. O E. at prices above the minimum long-run average cost of production, firms will enter the industry.

Answer 1

Supply curve is defined as the relationship between price and quantity supplied, it shows the quantities, industries are willing to sell at different prices.

Marginal cost curve depicts for each additional unit of output, the added total cost incurred.

In the long run, market prices often change, which induces other firms to enter or exit the market. Thus the prices for inputs may also change which will cause the marginal costs to fluctuate. Thus the answer is E, as input prices change, in this case prices move above the minimum long run average cost of production, firms will enter the industry in the long run, which changes the marginal cost curve.

B is the exact opposite of E. All other options either relate to short run or are not relevant.