Author Question: What would be the long-run equilibrium result of output expansion in a decreasing-cost ... (Read 103 times)

Haya94 · **on:** Jun 30, 2018

What would be the long-run equilibrium result of output expansion in a decreasing-cost industry?

Question 2

The original comparative advantage model that used the relative abundance of factors of production to explain comparative advantage assumed that countries:
a. employed all four factors of production; land, labor, capital, and entrepreneurship.
b. employed only two factors of production; labor and capital.
c. employed only two factors of production; land and entrepreneurial ability.
d. worked with a fixed capital stock.
e. were free to vary their employment of only one factor of production; labor.

brittanywood · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

An expansion in the output of a decreasing-cost industry can lead to a reduction in input costs and shift the MC and ATC curves downward, and the market price falls. Effectively, a firm experiences lower cost as an industry expands. The new long-run market equilibrium has more output at a lower price. The long-run supply curve is downward sloping.

Answer to Question 2

b