A firm is operating with an optimal combination of inputs.Suddenly the price of one input rises.The firm should
A)buy less of that input and more of the other input.
B)change its input mix so that the marginal physical product of the input whose price has risen falls and the marginal physical product of the other input rises.
C)buy less of whichever input now has the highest money price and more of the other input.
D)reduce its output.

Question

Quizplus · Accepted Answer

When the price of one input rises, the firm should adjust its input combination to minimize costs. This typically involves buying less of the more expensive input and substituting it with more of the other input, assuming they are substitutable.

A Firm Is Operating with an Optimal Combination of Inputs