C2 SP01 #32 Micro: discrepancy between exam and book

[VernSchil]

Question 32 on Spring 01:

Which of the following statements about the short run supply curve for a competitive industry is false?

statement 4: As price and output increase for the industry, the factor-price effect is likely to make the industry supply curve less elastic.

This statement is chosen in the answer as one that is false, however on page 200 of Price Theory 4th edition it states, "The factor-price effect tends to make the industry supply curve steeper (less elastic) than it would otherwise be"

Is there an error somewhere or am I just missing something? I'd appreciate it if someone could clear this up. Thanks

-Luke

[Avi]

In my copy of the exam (Actex) D is NOT given as an answer as it is true. Where did you see that D was a correct answer?

[Mr. BoH]

I think they goofed on that question and wound up accepting all answers as correct.

[VernSchil]

In The CSM manual, micro econ chapter 7 section C, question C10, it says that E is the correct answer. E contains statements 3, 4 and 5. Wow, CSM really butchered this question. I checked the actual exam #32, something I should have done before posting, and the question is presented very differently. CSM says answer choices C, D, and E are all incorrect. Aren' t they right about C? The exam answer is E, but it seems C should also be included since firms can't enter the market in the short run.

[retaker]

Yeah, It's wrong, and it's definitely not the only one.

[retaker]

Isn't the correct answer, C?

[Avi]

Actex gives E and possibly C as correct. When I did this practice exam I thought it was C too.

[retaker]

I think E) might actually be a true statement according to Landsburg. If I remember correctly, Factor price effect is only discussed in the short-run industry supply curve section, so since the costs rise for the industry as a whole, it makes sense that the costs rise for each firm too. The rise in costs isn't a fixed cost, but rather the cost increases for each additional unit produced as the total number produced grows. This seems to imply that the MC increases. Assuming MC is upward sloping, this implies that the MC curve drops or shifts to the right.

I have been told that:

The factor price effect makes the long run supply curve steeper, but it shifts the short run supply curve upward.

This doesn't seem to be in accordance with Landsburg. What do you all think?

[retaker]

What the H_ll am I saying? It wouldn't drop. It would rise!

E) is false.