- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 1. The Firm and Market Structures
- Subject 5. Understanding Economies and Diseconomies of Scale
CFA Practice Question
As compared to the short-run supply curve, what should the long-run supply curve look like?
A. steeper
B. flatter
C. It depends on the cost structure of the industry.
Explanation: The supply curve is more elastic (flatter) in the long run, because in the long run, all costs are variable, so firms can modify their production facilities or enter/leave the market.
User Contributed Comments 4
| User | Comment |
|---|---|
| GeorgeL | flexibility <=> elasticity |
| jpducros | more elasticity in the supply curve = flatter? wrong. it's the opposite. |
| leftcoast | jpducros - the answer is correct. Flatter means a larger % change in quantity supplied for every % change in price, which means supply is elastic. A steep curve would mean quantity supplied would change very little if price changed by a large %, which would mean supply is very inelastic. 90% of the questions on here have someone claiming the answer is incorrect. I've only seen one that has been legitimately incorrect. |
| xemex131 | flat should mean horizontal, steep should mean vertical, answer should be B |