Rubber eel toys are produced in a perfectly competitive market. The longrun supply curve for these toys is perfectly elastic.

Based on this information, which of the following is true for this industry?

Choose 1 answer:
(A) When more firms enter this market, input prices don't change.
(B) When more firms enter this market, each firm's average total cost curve increases.

C The marginal cost curve for a firm in this industry decreases as more firms enter.
(D) An increase in demand in this market increases prices in the longrun.
(E) When more firms enter this market, input prices increase.

Question

Rubber eel toys are produced in a perfectly competitive market. The longrun supply curve for these toys is perfectly elastic.

Based on this information, which of the following is true for this industry?

Choose 1 answer:
(A) When more firms enter this market, input prices don't change.
(B) When more firms enter this market, each firm's average total cost curve increases.

C The marginal cost curve for a firm in this industry decreases as more firms enter.
(D) An increase in demand in this market increases prices in the longrun.
(E) When more firms enter this market, input prices increase.

Accepted Answer

∻Solution∻ ‖ a ⋮ Perfectly Elastic Long-Run Supply Curve: In a perfectly competitive market with a perfectly elastic long-run supply curve, the price of the product remains constant regardless of the quantity supplied. This implies that the industry can supply any amount of the product at the prevailing market price without affecting the input prices. ‖ ‖ b ⋮ Entry of Firms: When more firms enter the market, the total supply of rubber eel toys increases. However, since the long-run supply curve is perfectly elastic, the market price remains unchanged. This means that input prices do not change as more firms enter the market. ‖ ‖ c ⋮ Average Total Cost Curve: The average total cost (ATC) curve for each firm remains unchanged because input prices do not change. Therefore, the ATC curve does not increase when more firms enter the market. ‖ ‖ d ⋮ Marginal Cost Curve: The marginal cost (MC) curve for each firm also remains unchanged because input prices do not change. Therefore, the MC curve does not decrease when more firms enter the market. ‖ ‖ e ⋮ Long-Run Prices: An increase in demand in this market will not increase prices in the long run because the long-run supply curve is perfectly elastic. The market can supply any quantity demanded at the prevailing price. ‖ ‖ f ⋮ Input Prices: Since the long-run supply curve is perfectly elastic, input prices do not increase when more firms enter the market. ‖ ∻Answer∻ ⚹ (A) When more firms enter this market, input prices don't change. ⚹ ∻Key Concept∻ ⚹ Perfectly Elastic Long-Run Supply Curve ⚹ ∻Explanation∻ ⚹ In a perfectly competitive market with a perfectly elastic long-run supply curve, the price remains constant regardless of the quantity supplied. This means that input prices do not change when more firms enter the market. ⚹◊What impact does a perfectly elastic long-run supply curve have on the pricing and competitiveness of the rubber eel toy industry in a perfectly competitive market?⍭ Generate me a similar question◊

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