Assume that labor is a variable input. The average wage of workers increases in a purely competitive industry. This change will result in a(n)
A) increase in marginal cost for firms in the industry and an increase in the industry supply curve.
B) decrease in marginal cost for firms in the industry and a decrease in the industry supply curve.
C) decrease in marginal cost for firms in the industry and an increase in the industry supply curve.
D) increase in marginal cost for firms in the industry and a decrease in the industry supply curve.

Question

Quizplus · Accepted Answer

An increase in the average wage of workers will cause an increase in the firms' costs of production, which will lead to an increase in marginal cost for firms in the industry. As firms face higher costs, they will reduce their output and the industry's supply curve will decrease.

Assume That Labor Is a Variable Input