Asked by Taylor Lopez on May 19, 2024
Verified
Suppose all firms have constant marginal costs that are the same for each firm in the short run. In this case, the market level supply curve is ________ and producer surplus equals ________.
A) perfectly inelastic; fixed costs
B) perfectly inelastic; zero
C) perfectly elastic; fixed costs
D) perfectly elastic; zero
Market Level Supply
The total quantity of a good or service that producers are willing to sell across the entire market at a given price level.
Marginal Costs
The swelling of total charges resulting from generating an extra unit of a good or service.
- Gain familiarity with the relationship of marginal cost, average variable cost, fixed costs, and their effect on short-run supply curves.
- Clarify the interrelation between economic profit, producer surplus, and the pursuit of cost minimization.
Verified Answer
KO
Kehinde OluwaseunMay 22, 2024
Final Answer :
D
Explanation :
When all firms have constant marginal costs that are the same for each firm, the market supply curve is perfectly elastic. This means that firms are willing to supply any quantity at a specific price. Producer surplus equals zero because with constant marginal costs equal for each firm, the price received by the firms equals their marginal cost, leaving no surplus.
Learning Objectives
- Gain familiarity with the relationship of marginal cost, average variable cost, fixed costs, and their effect on short-run supply curves.
- Clarify the interrelation between economic profit, producer surplus, and the pursuit of cost minimization.