Suppose that entry of new firms into an industry significantly increases the mar

Question

Suppose that entry of new firms into an industry significantly increases the market demand for a key input. If supply of the key input is very price inelastic, then, for each firm in the industry in the long run,

a. external diseconomies shift its entire ATC curve upward
b. external economies shift its entire ATC curve downward
c. external diseconomies move it to the left along its original ATC curve
d. diseconomies of scale shift its entire ATC curve upward
e. economies of scale shift its entire ATC curve downward

Explanation / Answer

b. external economies shift its entire ATC curve downward

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