If factor prices decrease,
A) there will be a downward shift in the long- run average cost curve but not in the short- run average cost curve.
B) a firm will move down along both its long- run and short- run average cost curves.
C) both the long- run and short- run average cost curves will shift downward.
D) a firm will move down along its long- run average cost curve only.
E) there will be no change in the cost curves in the long run.

Question

Quizplus · Accepted Answer

If factor prices decrease, both the long- run and short- run average cost curves will shift downward. This is because lower factor prices reduce the cost of production, making it cheaper for firms to produce goods and services. As a result, both the long- run and short- run average cost curves will shift downward, indicating that firms can produce at lower costs at any given level of output.

If Factor Prices Decrease