Changes in cost of factors of production affect supply. Give reason. – InterviewSolution

1.	Changes in cost of factors of production affect supply. Give reason.
Answer» Land, labour, capital and entrepreneur are the four factors of production. When rent paid to the owner of land or wages paid to the labourer, decrease, the cost of production decreases. When cost of production decreases and if price remains unchanged, the profits increase. Hence, the seller is more willing to sell large quantity. Thus, supply expands when prices of factors of production fall. On the contrary, if cost of production rises, the situation becomes opposite and the supply contracts.

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