Question from Schweser Sample Exams book, Exam 1, PM, #162 BLD makes bottled water. The industry has experienced fast growth. The growth has attracted many competitors to the industry. However, marketing campaigns to differentiate their products have been unsuccessful. The main cost to producers is the filtering system to make purify the water. The demaind for filtering systems, due to industry growth, has led to a reduction in the cost of the systems. Indicate whether the bottled water market is best described as a price searcher or price taker and whether long run supply curve is upward or downward sloping. A. price searcher - downwar sloping B. price taker - downward sloping C. price searcher - upward sloping D. price taker - upward sloping. Ans: B. I understand the price taker part, but how come the supply curve be downward sloping? I only recall seeing vertical supply curves and upward sloping ones?
In a decreasing cost industry (external economies of scale) – which is what is faced by the firm above, the Long Run supply curve would be downward sloping.
think about it this way, more quantity produced at lower prices = downward sloping curve, and vice versa. good luck!
Thanks for the clarification. I was confused because I didn’t recall ever seeing that type of supply curve in my reading.
I remember read this recently. It is in the CFAI book. Book 2, P153.