Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased factor mobility leads to a decrease in marginal cost due to efficient resource allocation.
B
Factor mobility does not affect marginal cost as it remains constant regardless of input adjustments.
C
Decreased factor mobility results in lower marginal costs as firms become less dependent on variable inputs.
D
Factor mobility only affects fixed costs, leaving marginal costs unchanged.
Understanding the Answer
Let's break down why this is correct
Answer
In a perfectly competitive market, firms aim to produce at the lowest possible cost to maximize their profits. Factor mobility refers to how easily resources, such as labor and capital, can move from one industry to another. When resources can move freely, if one industry is making high profits, workers and capital will shift towards that industry, increasing supply and driving down prices. This adjustment continues until firms in all industries reach a point where they have similar costs and profits, known as long-run equilibrium. For example, if a new technology makes it cheaper to produce smartphones, workers will move into that sector, lowering the marginal cost of production until it balances out across the market.
Detailed Explanation
When resources can move easily, firms can use them better. Other options are incorrect because Some might think costs stay the same no matter what; This answer suggests that less movement of resources helps lower costs.
Key Concepts
Factor mobility
Marginal cost
Topic
Long-Run Equilibrium Adjustments
Difficulty
medium level question
Cognitive Level
understand
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