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Question
If an increase in output by the firms in an industry causes only a slight increase or decrease in cost per unit, supply will be ______.
Options
Perfectly elastic
Relatively elastic
Perfectly inelastic
Relatively inelastic
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Solution
If an increase in output by the firms in an industry causes only a slight increase or decrease in cost per unit, supply will be Relatively elastic.
Explanation:
When an industry can raise its overall output while just slightly increasing the cost per unit, it suggests that growing production is cheap and simple, allowing firms to respond quickly to any cost increases. In economic theory, a high level of supply responsiveness to price or cost changes means that a modest price change causes a correspondingly bigger rise in quantity supplied, resulting in a moderately elastic supply curve.
