A long-run supply curve is flatter than a short-run supply curve because
A. firms can enter and exit a market more easily in the long run than in the short run.
B. long-run supply curves are sometimes downward sloping.
C. competitive firms have more control over demand in the long run.
D. firms in a competitive market face identical cost structures.
The correct answer is A. Firms can enter and exit a market more easily in the long run than in the short run.
To understand why the long-run supply curve is flatter than the short-run supply curve, we need to consider the concept of fixed and variable costs.
In the short run, firms have fixed costs that cannot be easily adjusted. Examples of fixed costs include rent, lease payments, or the cost of purchasing machinery. These costs do not change regardless of the level of output produced. In the short run, firms can only adjust their variable costs, such as labor or raw material costs, to respond to changes in demand.
As a result, in the short run, firms may have limited ability to quickly enter or exit a market. If demand increases, firms may not be able to increase their production capacity immediately, leading to a steeper short-run supply curve. Similarly, if demand decreases, firms may not be able to reduce their production capacity immediately, resulting in a steep short-run supply curve as well.
However, in the long run, firms can adjust both their fixed and variable costs. They have more flexibility to enter or exit a market. For example, they can build new factories or expand their production facilities to meet increased demand, or they can close down unprofitable factories to reduce costs in response to decreased demand.
This greater flexibility in the long run allows firms to respond more readily to changes in demand, resulting in a flatter long-run supply curve. Firms can enter or exit a market more easily, adjusting their production capacities to meet the demands of the market in the long run.
A. firms can enter and exit a market more easily in the long run than in the short run.
In the long run, firms have more flexibility to adjust their production quantities and adjust to changes in market conditions. They can enter the market if there is a profit opportunity or exit the market if it becomes unprofitable. This flexibility allows the long-run supply curve to be flatter than the short-run supply curve.