A factor-price effect occurs when increases in the industry's output
A) attract new firms to the industry.
B) raise the cost of a variable input.
C) cause new subindustries to be developed.
D) result in lower prices for consumers.

Question

Quizplus · Accepted Answer

A factor-price effect refers to an increase in the price of a variable input used in the production process. As the industry's output increases, the demand for inputs, such as labor or raw materials, also increases, causing their prices to rise. This effect is known as the factor-price effect. Therefore, the correct answer is (B) raise the cost of a variable input.

A Factor-Price Effect Occurs When Increases in the Industry's Output