A firm produces Ping-Pong balls using two inputs.When input prices are ($15, $7)the firm uses the input bundle (17, 71).When the input prices are ($12, $24)the firm uses the bundle (77, 4).The amount of output is the same in both cases.Is this behavior consistent with WACM?
A)Yes.
B)No.
C)It depends on the level of the fixed costs.
D)We have to know the price of the output before we can test WACM.
E)It depends on the ratio of variable to fixed costs.

Question

Quizplus · Accepted Answer

The firm's behavior is consistent with the Weak Axiom of Cost Minimization (WACM), which states that if the price ratio of inputs changes, the firm will adjust its input bundle to minimize costs for the same level of output. The change in input bundles in response to the change in input prices demonstrates this behavior.

A Firm Produces Ping-Pong Balls Using Two Inputs