Input demand functions that are calculated from profit functions differ from those calculated from cost functions because:
A)they assume cost-minimization.
B)they hold output constant.
C)they assume output price is constant.
D)they assume output is set at its profit-maximizing level.

Question

Quizplus · Accepted Answer

When calculating demand functions from profit functions, it is assumed that firms choose their output level in a way that maximizes their profits. Therefore, the resulting demand function reflects the optimal output level chosen by the firm given the market price. On the other hand, demand functions calculated from cost functions assume that firms choose their output level in a way that minimizes their costs, holding market price constant.

Input Demand Functions That Are Calculated from Profit Functions Differ