What would be the long-run equilibrium result of output expansion ...

[Haya94]

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]

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

[Haya94]

Gracias!

[helenmarkerine]

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