How did the completion of the transcontinental railroad affect companies that made products in the United States?

• A. It had no significant impact on the ability of companies to trade or specialize.
• B. It reduced the need for companies to specialize, as local markets became more isolated.
• C. It lowered transportation costs, allowing companies to access larger markets and specialize according to comparative advantage.
• D. It increased transportation costs, making it harder for companies to trade across regions.

Answer: (C)

Verified step by step guidance

1. Understand the role of transportation infrastructure in microeconomics, particularly how it affects trade and specialization among companies.
2. Recognize that the completion of the transcontinental railroad significantly lowered transportation costs by connecting distant regions more efficiently.
3. Analyze how lower transportation costs expand the size of accessible markets for companies, enabling them to sell products beyond local areas.
4. Consider the concept of comparative advantage, where companies specialize in producing goods for which they have a lower opportunity cost, benefiting from larger markets.
5. Conclude that by reducing transportation costs and expanding markets, the transcontinental railroad encouraged companies to specialize and trade more extensively across regions.