An increase in production costs at any given quantity:

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BlackTom AI · Accepted Answer

Let’s break down the scenario described and examine how each option fits with standard supply theory.
Option 1: 'increases supply.' This would imply that higher production costs somehow encourage producers to supply more at each quantity, which is inconsistent with the basic law of supply. Higher costs raise the marginal cost of producing each unit, making production less profitable at any given quantity, so supply would not increase.
Option 2: 'decreases supply.' When production costs rise, the opportunity cost of supplying each unit goes up. Firms are less willing to produce and offer the good at the same price, leading to a smaller quantity supplied at each price. In the diagrammatic sense, the supply curve would shift left, reflecting a reduction in quantity supplied for any given price, which matches this option.
Option 3: 'does not change supply.' If costs rise at every quantity, a rational producer would adjust behavior by supplying less, not the same amount. Therefore, it is unlikely that supply remains unchanged in the face of higher production costs, making this option incorrect.
Option 4: 'changes supply in an indeterminate direction.' While in some complex models there could be external factors altering behavior, the standard result in basic microeconomics is that a rise in production costs reduces supply, not leaves it indeterminate. This option ignores the direct link between costs and marginal profitability, so it’s not accurate.
Put together, the comparison shows that only the second option aligns with the conventional relationship between production costs and the quantity supplied at a given price, while the others conflict with the core idea that higher costs deter production and shrink supply.

ECON 201 Quiz 2: Ch 3 on S&D

An increase in production costs at any given quantity:

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