Suppose the government restricts the amount of capital equipment firms can purchase in an attempt to increase employment.If a firm expands output then its long-run average costs will be:
A)less than they would be without the restriction.
B)more than they would be without the restriction.
C)the same as they would be without the restriction.
D)uncertain.Need more information

Question

Quizplus · Accepted Answer

With the restriction on the purchase of capital equipment, firms would not be able to increase their productivity as much as they would be able to without the restriction. This would lead to higher long-run average costs, as the firm would have to use less efficient methods to produce the same level of output. Therefore, the long-run average costs would be higher than they would be without the restriction.

Suppose the Government Restricts the Amount of Capital Equipment Firms