ACCA Certification Complete Practice Test 2025

In the long run, a firm's supply curve is represented by the marginal cost curve, which reflects the relationship between the price of a good and the quantity of that good that a firm is willing to supply. The reason for this is that a firm will continue to increase production as long as the price it receives for its product covers the marginal cost of producing that additional unit.

When the price is below the marginal cost, the firm will not supply that quantity because it would incur a loss on producing extra units. Conversely, when the price is above the marginal cost, the firm can benefit from increasing production, thereby expanding its output. It is essential to note that in the long run, firms can adjust all inputs and enter or exit the market, which also aligns the supply curve with the marginal cost curve.

The supply curve derived from the marginal cost takes into account the efficient allocation of resources in production, leading to long-run equilibrium conditions in a competitive market. This means that firms will supply output where the price equals marginal cost, thus optimizing their operations and possibly earning normal profits in the long run.

Other options, such as the average total cost curve or price elasticity curve, do not serve as direct representations of supply under long-run conditions. The marginal