If two different fuel sources (e.g., coal and natural gas) are perfect substitutes in the long-run production of energy. How will a profit maximizing firm choose between these two inputs?
A) The firm will only use the input with lower cost
B) The firm will use equal amounts of the two inputs, even if one of the inputs has a lower cost.
C) The firm will only use the input with higher cost.
D) The firm cannot achieve a profit maximizing level of output under these circumstances.

Question

Quizplus · Accepted Answer

A profit maximizing firm will always choose the input with the lower cost, regardless of whether the inputs are perfect substitutes or not. This is because using the lower cost input will allow the firm to produce the same amount of output at a lower cost, which will increase profits.

If Two Different Fuel Sources (E