If all firms, existing and potential new entrants, face decreasing industry costs in the long run under perfect competition, the industry supply curve will: Necessarily be upward sloping Slope downwards if there are external diseconomies of scale Slope upwards if there are internal economies of scale Only be horizontal if there are constant external costs with respect to industry size Slope downwards if there are external economies of scale Solution External economies of scale imply the lowering of costs in the long run due to external factors. Perfect competition always charges the price equal to its marginal costs, thus, since the marginal costs are falling due to external economies of scale, the supply curve will be downward sloping. Hence, the correct option is (e) Slope downwards if there are external economies of scale . .