In a perfectly competitive, the long run supply curve of the industry is the horizontal summation of the long-run marshalls cost curves of individual firms.True or false
False.
In a perfectly competitive market, the long-run supply curve of the industry is determined by the horizontal summation of the long-run marginal cost curves of individual firms, not the Marshall's cost curves. The long-run supply curve represents the quantity that firms are willing and able to supply at different market prices in the long run.
True.
In a perfectly competitive market, the long-run supply curve of the industry is determined by the horizontal summation of the long-run marginal cost curves of individual firms. This is because in the long run, firms can enter or exit the industry, leading to adjustments in the number of firms and their production levels. As firms enter or exit, the industry supply curve adjusts to the point where all firms are operating at their minimum efficient scale, resulting in a horizontal long-run supply curve.
True.
To understand why the long-run supply curve of a perfectly competitive industry is the horizontal summation of the long-run Marshall's cost curves of individual firms, we first need to consider the characteristics of a perfectly competitive market.
In a perfectly competitive market, there are many buyers and sellers. These firms produce identical products, and there are no barriers to entry or exit in the industry. Additionally, both buyers and sellers have perfect information about prices and quantities in the market.
Now, let's discuss the concept of the long-run supply curve. The long run is a period in which firms can adjust all factors of production, including their scale of operations. In this context, the long-run supply curve represents the relationship between the market price and the quantity of output that firms are willing and able to produce and sell in the long run.
In a perfectly competitive market, each firm is a price taker, meaning that it cannot influence the market price. Instead, it produces at the level where its marginal cost equals the market price. The long-run cost curve of an individual firm, known as the long-run Marshall's cost curve, shows the minimum cost of producing different levels of output when all inputs are variable.
When we consider the long-run supply of the industry, we need to sum up the quantities that all firms are willing to produce and sell at different price levels. Since each firm in a perfectly competitive market produces at the point where marginal cost equals price, we can horizontally sum the individual firm's long-run Marshall's cost curves to derive the long-run supply curve of the industry. This is because the individual firm's cost curves will reflect the minimum cost of production for different output levels.
Therefore, in a perfectly competitive market, the long-run supply curve of the industry is indeed the horizontal summation of the long-run Marshall's cost curves of individual firms.