The long-run total cost curve tends to:
A)rotate upward when input prices fall.
B)rotate upward when input prices rise.
C)shift vertically upward by a fixed amount.
D)shift vertically downward by a fixed amount.

Question

Quizplus · Accepted Answer

The long-run total cost curve is based on the firm's technology, so changes in input prices do not affect the shape of the curve. However, changes in input prices do affect the level of costs, causing the long-run total cost curve to shift vertically up or down. When input prices rise, the long-run total cost curve shifts upward, and when input prices fall, the long-run total cost curve shifts downward. Therefore, the correct answer is B. The long-run total cost curve is affected by input prices, which are a key determinant in the cost of production. When input prices rise, the cost of producing output also rises, which leads to an upward rotation of the total cost curve. Conversely, when input prices fall, the cost of producing output falls, which results in a downward rotation of the total cost curve. Therefore, the best choice is B.

The Long-Run Total Cost Curve Tends To