A new worker safety regulation will increase the marginal cost of extracting crude oil from the ground. This will result in a(n) for crude oil.
Marginal cost is the extra cost borne by the producer due to the production of extra unit. This marginal cost is equals to the supply curve in a perfectly competitive market since the marginal cost signifies how much supply of goods is the market. Thus any increase in marginal cost will signify increase in supply of goods and vice versa. This marginal cost should always be greater than average cost of production since when average cost is greater than marginal cost then the firm is not able to recover what it is investing which means the firm is incurring heavy loss.
The general rule says that when there is any increase in marginal cost then it means the price of goods will also go up and so should the supply of good should also be increased but up to a point where Marginal revenue is equal to marginal cost. But once this marginal cost is greater than marginal revenue then the supply should be reduced.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
