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Market Supply Curve in the Short Run and Long Run quiz

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  • What is the key feature of the short run in the market supply curve?
    The number of firms in the market is fixed in the short run.
  • How is the market supply curve constructed in the short run?
    It is the sum of individual firms' marginal cost curves above their average variable cost.
  • When do individual firms supply in the short run?
    Firms supply when the price is above their average variable cost.
  • What does the marginal cost curve represent for an individual firm?
    It represents the firm's supply curve when supplying in the short run.
  • How do you calculate market supply if all firms have identical marginal cost curves?
    Multiply the quantity supplied by one firm at a given price by the number of firms.
  • What happens to economic profit in the long run for firms in a competitive market?
    Firms earn zero economic profit in the long run.
  • Why do firms stay in business in the long run if economic profit is zero?
    Because economic profit includes opportunity costs, and firms still earn positive accounting profit.
  • What is the profit equation used to determine economic profit?
    The equation is P - ATC, where P is price and ATC is average total cost.
  • What causes firms to enter the market in the long run?
    Firms enter when price is greater than average total cost, indicating positive economic profit.
  • What happens to market price when new firms enter the market?
    Market price falls as supply increases.
  • What causes firms to exit the market in the long run?
    Firms exit when price is below average total cost, resulting in economic losses.
  • What is the equilibrium condition for the long run market supply?
    Equilibrium occurs when price equals average total cost (P = ATC).
  • What shape does the long run market supply curve take?
    It becomes a flat, perfectly elastic line at the minimum average total cost.
  • How does the market adjust to changes in demand in the long run?
    The number of firms adjusts so that supply always meets demand at the minimum ATC.
  • Why is the long run market supply curve perfectly elastic?
    Because entry and exit of firms ensure price remains at the minimum average total cost regardless of demand.