Question

a.

If in this industry, expansion results in increasing demand for the many workers with specialized skills, including cross-company recruitment and bidding up of workers’ wages, this must be:

A decreasing cost industry

a constant cost industry

an increasing cost industry

b.
If firms had been able to hire new workers without increasing wages industry-wide during expansion, the market could have expanded _________ than if wages increased.

More

Less

c.

If firms had been able to hire new workers without increasing wages industry-wide during expansion, the price of tool and die products would have been ________________ than if wages increased.

higher

lower

d.

What would the long run supply curve look like if expansion did not increase wages (or any other input prices)?

upwardly sloping

flat (horizontal)

downward sloping

e.

What would the long run supply curve look like if expansion did not increase wages (or any other input prices)?

upwardly sloping

flat (horizontal)

downward sloping

Answer 1

Ans A). Option 3 is correct. An increasing cost industry.

Cost industry: An industry that experiences the change in the cost of production with the change in the number of companies competing in it.

In this question, the expanding industry is experiencing the increase in demand of the input i.e. workers or to be more specific specialized workers that were limited in number. As the specialized workers are involved, their wages will also increase and this will in turn increase the cost of production. This situation takes place in an increasing cost industry. Other options have different effects.

Ans B). Option 1 is correct. More.

This is because the capital that was kept for paying the wages can now be used for other important activities that will help the company to expand and grow efficiently. However, realistically, skilled workers will demand an increase in wages.

Ans C). Option B is correct. Lower prices.

There is a theory called a wage-price spiral. Increasing wages will also increase prices. That's why if there was no increase in wages when new workers are hired in the expansion period of the industry, then the prices of goods such as tools will also be lower.

Ans D). Option 2 is correct. Horizontal curve.

It is called a constant cost industry when the expansion does not result in increase in the input prices.

Question D and E are same.