10 Give two reasons why the long-run industry supply curve may slope upward Use an example to demonstrate your reasons?

Answer 1

There are, however, two reasons that the long-run market supply curve might

slope upward. The first is that some resource used in production may be avail-

able only in limited quantities. For example, consider the market for farm prod-

ucts. Anyone can choose to buy land and start a farm, but the quantity of land is

limited. As more people become farmers, the price of farmland is bid up, which

raises the costs of all farmers in the market. Thus, an increase in demand for

farm products cannot induce an increase in quantity supplied without also

inducing a rise in farmersÕ costs, which in turn means a rise in price. The result is a long-run market supply curve that is upward sloping, even with free entry

into farming.

A second reason for an upward-sloping supply curve is that firms may have dif-

ferent costs. For example, consider the market for painters. Anyone can enter the

market for painting services, but not everyone has the same costs. Costs vary in

part because some people work faster than others and in part because some people

have better alternative uses of their time than others. For any given price, those

with lower costs are more likely to enter than those with higher costs. To increase

the quantity of painting services supplied, additional entrants must be encouraged

to enter the market. Because these new entrants have higher costs, the price must

rise to make entry profitable for them. Thus, the long-run market supply curve for

painting services slopes upward even with free entry into the market.