Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 3

A fall in the price of an input induces a profitmaximizing firm to experience both substitution and output effects that cause it to hire more of that input. Explain how the profit-maximizing assumption is used in explaining the direction of each of these effects. Did you have to use the assumption that the input is not inferior in your analysis? Do you think a similar statement can be made about inferior inputs?