The basic relationship between the cost of prod... - JAMB Economics 1994 Question
The basic relationship between the cost of production, and the market price of any commodity in the short run is that the market price?
A
always reflects the cost of labour
B
reflects the variable, but not the fixed cost of production
C
does not rise above variable costs
D
is determined by the cost of production and the current rate of inflation
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Correct Option: B
The relationship between the cost of production and market price in the short run is complex and not accurately represented by any of the provided options. Here's why:
- Market price is determined by supply and demand: The market price is primarily determined by the interaction of supply and demand, not solely by the cost of production. While production costs influence supply, other factors like consumer preferences, competition, and external economic conditions also play a significant role.
- Short-run considerations: In the short run, firms may continue to produce even if the market price is below the total cost of production, as long as it covers variable costs.
- Inflation: The current rate of inflation might be a secondary factor, but the core price determination is the supply and demand.
- Labor costs: Labor costs
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