Consider the short- run and long- run cost curves for a firm.If there is a fall in all factor prices faced by the firm,
A)it will move to a lower point on its existing long- run and short- run average cost curves.
B)there will be no change in the cost curves in the long run.
C)both the long- run and short- run average cost curves will shift downward.
D)it will move to a lower point on its existing long- run average cost curve only.
E)there will be a downward shift in the long- run average cost curve but not in the short- run average cost curve.

Question

Quizplus · Accepted Answer

A fall in all factor prices faced by a firm will lead to lower costs both in the short run and in the long run, as all inputs will become cheaper. This will result in a downward shift of both the short-run and the long-run average cost curves. In the long run, the firm will have more flexibility to adjust its inputs and scale of production, so the cost savings will be even greater. Therefore, the correct answer is C.

Consider the Short- Run and Long- Run Cost Curves for a Firm.If