Suppose that as the output of mobile phones increases, the...

Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be: $L O 11.3$ a. Upward sloping. b. Downward sloping. c. Horizontal. d. U-shaped.

Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be: $L O 11.3$
a. Upward sloping.
b. Downward sloping.
c. Horizontal.
d. U-shaped.

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Key Concepts

Pure Competition

In a purely competitive market, many firms sell homogeneous products and are price-takers, meaning no single firm can affect the market price. In the long run, firms operate where economic profits are zero, and market entry and exit ensure that supply meets demand at the minimum point of the average cost curve.

Long-Run Supply Curve

The long-run supply curve represents the relationship between market price and total output when all production inputs are variable. Its shape depends on how average costs change as output increases. In industries where increased production reduces costs, the long-run supply curve can slope downward, reflecting lower prices at higher output levels.

Economies of Scale / Input Cost Reductions

Economies of scale occur when an increase in production leads to lower average costs, often due to more efficient production techniques or bulk purchasing of inputs. In scenarios where higher output reduces the cost of essential components, such as touch screens for mobile phones, these cost reductions can result in a downward sloping long-run supply curve as the industry benefits from lower per-unit costs.

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