-The above figure shows the long-run expansion path.With an increase in the wage rate,the long run expansion path will
A)remain unchanged.
B)shift up.
C)shift down.
D)become flatter.

Question

-The above figure shows the long-run expansion path.With an increase in the wage rate,the long run expansion path will
A)remain unchanged. 
B)shift up. 
C)shift down. 
D)become flatter.

Quizplus · Accepted Answer

In the context of production theory, the long-run expansion path of a firm shows the combination of inputs that the firm will use at different levels of output to minimize cost. If the wage rate increases, the cost of labor increases relative to the cost of other inputs (like capital). To minimize costs, the firm will use less labor and more of the other inputs, assuming labor and the other inputs are substitutable to some extent. This adjustment in input combination due to an increase in the wage rate will cause the long-run expansion path to shift up, reflecting higher overall costs for any given level of output.

-The Above Figure Shows the Long-Run Expansion Path