An industry’s supply curve is more likely to be elastic when firms are?

A. enjoying free entry and exit
B. operating at full capacity
C. operating below capacity
D. maximizing profits

Correct Answer:

Option A – enjoying free entry and exit

Explanation

Elastic supply curves indicate that the quantity supplied response to price changes in a greater than proportional manner. An industry supply curve would most likely be elastic if the industry is operating in a market where there is free entry and exit.

The industry may decide to exit the market if the prices offered for its products are not good enough and decide to come back when the products are well priced.