Long-run market supply curves are downward sloping if
A firms are identical.
B the number of firms is restricted in the long run.
C input prices fall as the industry expands.
D All of the above.
The correct answer and explanation is :
The correct answer is: C) input prices fall as the industry expands.
Explanation:
In general, long-run market supply curves tend to be upward sloping or horizontal. However, under specific conditions, they can actually slope downward, meaning that as more of a good is produced, the market price falls. This unusual situation occurs primarily when input prices decrease as the industry grows.
Here’s why: in the long run, firms can enter or exit the market freely. If the cost of production falls as the industry expands — for example, due to economies of scale, bulk discounts, or improvements in technology or infrastructure — firms are willing to supply more at lower prices. These falling input costs shift the firms’ individual cost curves downward, allowing them to produce at a lower minimum average cost. As a result, the industry can supply more output even at a lower price, creating a downward-sloping long-run supply curve.
Now let’s consider the other options:
- A) Firms are identical: When firms are identical, the market behaves predictably, but this alone does not cause the supply curve to slope downward. Usually, with identical firms and constant input costs, the long-run supply curve would be flat (horizontal), not downward sloping.
- B) The number of firms is restricted in the long run: Restrictions on entry would typically limit supply and push prices up, not down, especially if demand increases.
- D) All of the above: Since A and B are incorrect, D cannot be correct.
Thus, only C accurately describes the condition under which a long-run market supply curve is downward sloping.