10. 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

10.    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

BlackTom AI · Accepted Answer

When resource costs rise in a purely competitive industry, the cost structure faced by each firm shifts upward, since inputs become more expensive to acquire. 
Option A: 'Increase in average fixed cost for a firm in the industry' is not correct because average fixed cost is tied to fixed inputs and, in the short run, does not systematically rise due to input price changes in aggregated terms; fixed costs per unit might rise only if output changes, but the question describes a general increase in resource costs, not a reallocation of fixed costs. 
Option B: 'Decrease in average variable cost for a firm in the industry' is incorrect because higher input costs raise, not lower, the variable cost per unit; there is no mechanism here that would reduce variable costs as input prices rise. 
Option C: 'Decrease in the marginal cost curve for a firm in the industry' is inaccurate since higher resource costs would push marginal cost upward, not downward; the marginal cost curve would shift up rather than down, given more expensive inputs to produce each additional unit. 
Option D: 'Decrease in the short-run supply curve for a firm in the industry' captures the proper effect: as marginal costs rise due to costlier resources, the quantity a firm is willing to supply at each price decreases, so the short-run supply curve shifts to the left (a reduction in supply). 
Overall, the reasoning shows that rising resource costs raise unit costs and push the firm’s supply response toward lower quantities at any given price, which corresponds to option D. Thus, option D aligns with the expected impact on short-run supply.

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