A competitive firm produces a single output using several inputs.The price of output rises by $3 per unit.The price of one of the inputs increases by $6 and the quantity of this input that the firm uses increases by 12 units.The prices of all other inputs stay unchanged.From the weak axiom of profit maximization we can tell that
A)the output of the good must have increased by at least 24 units.
B)the inputs of the other factors must have stayed constant.
C)the output of the good must have decreased by at least 12 units.
D)the inputs of at least one of the other factors must have decreased by at least 12 units.
E)the inputs of at least one of the other factors must have increased by at least 12 units.

Question

Quizplus · Accepted Answer

DThe weak axiom of profit maximization implies that if the price of an output increases, the firm will produce more of that output to maximize profit, hence A is correct. Additionally, if the price of an input increases and the firm uses more of it, it must be substituting away from other inputs to afford this, implying that the quantity of at least one other input must decrease, making D correct.

A Competitive Firm Produces a Single Output Using Several Inputs