8. Resource costs increase in a purely competitive industry. This change will result in a(n):
A. Increase in average fixed cost for a firm in the industry
B. Decrease in average variable cost for a firm in the industry
C. Decrease in the marginal cost curve for a firm in the industry
D. Decrease in the short-run supply curve for a firm in the industry

Question

BlackTom AI · Accepted Answer

Here is the question restated along with each answer option so you can see what is being evaluated.
Question: 8. Resource costs increase in a purely competitive industry. This change will result in a(n):
A. Increase in average fixed cost for a firm in the industry
B. Decrease in average variable cost for a firm in the industry
C. Decrease in the marginal cost curve for a firm in the industry
D. Decrease in the short-run supply curve for a firm in the industry

Option A: Increase in average fixed cost for a firm in the industry
Think about what happens to fixed costs when resource costs rise. Resource costs typically affect variable inputs and total variable cost rather than fixed costs, which are sunk or constant in the short run. Since fixed costs do not vary with output, an increase in resource costs does not imply an increase in average fixed cost. Therefore, this statement misattributes the source of the cost change and is not correct.

Option B: Decrease in average variable cost for a firm in the industry
If resource costs rise, the input prices for producing each unit go up, not down. Average variable cost is the variable cost per unit of output, and when input prices rise, AV C tends to rise as well (or at least not fall). Hence, this option incorrectly describes the direction of change in AVC and is not correct.

Option C: Decrease in the marginal cost curve for a firm in the industry
An increase in resource costs raises the cost of producing each additional unit, all else equal. That pushes the marginal cost curve upward rather than downward. A decreasing MC would imply cheaper production per unit, which contradicts the given scenario of higher resource costs. So this option is incorrect.

Option D: Decrease in the short-run supply curve for a firm in the industry
In perfect competition, a firm's short-run supply is the portion of its marginal cost curve that lies above average variable cost. When resource costs rise, the marginal cost of producing each additional unit typically increases, causing the firm to supply less at any given price. This reduces the quantity supplied and effectively shifts the firm's short-run supply curve to the left (a decrease in supply). This matches the intuitive outcome of higher input prices: firms cut back on output in the short run. Therefore, this option correctly describes the impact.

ECNM1116.32924.202530 Microeconomics Final; Spring 2025, 100 Multiple Choice Questions

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