Answer to Question #114992 in Microeconomics for Siya

Question

Which statement is true regarding a firm in the long run:
1) firms can be of many different sizes if the long run supply curve is horizontal
2) if economies of scale and diseconomies of scale exist, firms will be of the same size
3) no firms will be making economic profits
4 all of the above

Answer 1

For a firm in the long run: if economies of scale and diseconomies of scale exist, firms will be of the same size

The long-run is a period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all costs,

Supply curve is that curve which indicates various quantities supplied by the firm at different prices. A firm long run supply curve is determined upon the change in the optimum size of firms and change in the number of firms. Long run supply curve of industry can be known from the long run optimum production of firms multiplied by the number of firms in an industry.

if economies of scale and dis economies of scale exist, firms will be of the same size:

A firm experiencing Economic of scale Means; as the quantity of output goes up, the cost per unit goes down. This cost advantages means an improved efficiency in production, leading to lower costs and higher profits for the business. And vice versa for dis-economies of scale

Therefore, if a firms always experiencing economies of scale and dis economies of scale, the long-run supply curve is perfectly elastic. This means a horizontal straight line that means no matter the output quantities, the price remains the same.