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 raises the cost of labor, which is a variable input. This leads to an increase in the marginal cost for firms. As marginal costs rise, firms will supply less at each price level, leading to a decrease in the industry supply curve.

Assume That Labor Is a Variable Input