Consider a firm that uses labor and capital as the only inputs.Suppose labor is on the horizontal axis and capital is on the vertical axis.Further,the expansion path has shifted down and average cost curves have shifted up.Which of following provides the most likely explanation for what has happened?
A)The wage rate decreased
B)The wage rate increased
C)The price of capital decreased
D)The price of capital increased

Question

Quizplus · Accepted Answer

A downward shift in the expansion path indicates that the firm is using fewer inputs to produce the same level of output, which may happen when the price of one input increases. An upward shift in the average cost curves indicates that the overall cost of production has increased, which could happen when the price of one or both inputs increase. Therefore, the most likely explanation is that the price of capital has increased.

Consider a Firm That Uses Labor and Capital as the Only