In the long run, increasing production capacity tends to make price elasticity of supply:

• A. More inelastic
• B. More elastic
• C. Unchanged
• D. Impossible to tell

Answer: (B)

The key idea is that how responsive producers are to price changes depends on how easily they can adjust what they can produce. In the long run, all inputs are variable, so firms can expand capacity, adopt new technology, or even enter or exit markets. These options let them raise or cut output more readily when prices move, making the quantity supplied respond more to price changes. So the supply curve becomes flatter over the long run, reflecting greater elasticity. For example, with more capacity, a price increase can trigger a larger increase in output than would be possible with fixed capacity. Hence increasing production capacity makes price elasticity of supply more elastic.