Given below is a perfectly competitive firm under long run equilibrium.AC and MC represent the average cost and the marginal cost incurred by the firm.P₀ is the equilibrium price level while Q₀ is the equilibrium output.

-Refer to Figure .Suppose the cost of raw materials used in production increases.Which of the following changes will be observed?

Question

Given below is a perfectly competitive firm under long run equilibrium.AC and MC represent the average cost and the marginal cost incurred by the firm.P₀ is the equilibrium price level while Q₀ is the equilibrium output.

-Refer to Figure .Suppose the cost of raw materials used in production increases.Which of the following changes will be observed?

Quizplus · Accepted Answer

When the cost of raw materials increases, the average cost of production will increase, causing the AC curve to shift upward. Additionally, the increase in cost will also affect the marginal cost of production, causing the MC curve to shift upward. Therefore, both the AC and MC curves will shift upward.

Given Below Is a Perfectly Competitive Firm Under Long Run