Draw the long-run supply curve for the industry on the basis...

Draw the long-run supply curve for the industry on the basis of the cost data given below: $$ \begin{array}{cc} \hline \begin{array}{c} \text { Total Output of } \\ \text { Industry } \end{array} & \begin{array}{c} \text { Lowest Average Cost } \\ \text { Figure for Each Firm } \end{array} \\ \hline 500,000 & \$ 47 \\ 1,000,000 & 52 \\ 1,500,000 & 55 \\ 2,000,000 & 59 \\ 2,500,000 & 63 \\ 3,000,000 & 66 \\ \hline \end{array} $$

Draw the long-run supply curve for the industry on the basis of the cost data given below: $$
\begin{array}{cc}
\hline \begin{array}{c}
\text { Total Output of } \\
\text { Industry }
\end{array} & \begin{array}{c}
\text { Lowest Average Cost } \\
\text { Figure for Each Firm }
\end{array} \\
\hline 500,000 & \$ 47 \\
1,000,000 & 52 \\
1,500,000 & 55 \\
2,000,000 & 59 \\
2,500,000 & 63 \\
3,000,000 & 66 \\
\hline
\end{array}
$$

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

Long?Run Supply Curve

The long?run supply curve depicts the relationship between the price level and the total quantity produced by an industry when all inputs are variable, and firms can freely adjust their scale of production or enter/exit the market. It reflects the decisions of firms in the long run regarding production based on their cost structures, ensuring that firms produce at the point where per unit costs are minimized.

Average Cost and Minimum Efficient Scale

Average cost measures the cost per unit of output, and in the long-run, firms adjust their production to achieve the lowest average cost, known as the minimum efficient scale. This point signifies the optimal size of production where firms operate most efficiently, and it plays an essential role in determining the price level at which they are willing to supply output.

Aggregation to Form Industry Supply

The industry supply curve in the long run is derived by horizontally summing the individual supply curves of firms that are operating at their minimum efficient scale. When each firm has adjusted to produce at its lowest average cost, the industry supply curve demonstrates how the overall market quantity supplied varies with changes in price, taking into account the entry and exit of firms driven by profitability in the long run.

Transcript

Please give Ace some feedback