If an Industry Has a Horizontal Long-Run Industry Supply Curve

question 91

Multiple Choice

If an industry has a horizontal long-run industry supply curve, then which of the following must be true?

• A)An increase in market demand results in firm entry, and so market price declines in the long run.
• B)An increase in market demand results in industry expansion, and so market price increases in the long run.
• C)A decrease in market demand results in firm exit, and so market price in the long run remains the same as before the market demand change.
• D)A decrease in market demand results in firm exit, and so market price in the long run declines in the long run.
• E)Any change in market demand has no effects on firms.

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Definitions:

Production Functions

Mathematical relations stipulating how output levels are achieved with different combinations of input factors such as labor and capital.

Input

Refers to the resources used in the production of goods and services, such as labor, raw materials, and capital.

Returns To Scale

The change in output as all inputs are increased proportionally in the production process.

Inputs

The resources such as labor, materials, and capital that are used in the production process to create goods and services.