All else constant,as the price of petroleum increases relative to the prices of other inputs to the production process,in their effort to minimize their total costs of production,we can expect to see firms employ:
A)less of each of the inputs of production.
B)more petroleum and less of the other inputs to production.
C)less petroleum and more of the other inputs to production.
D)the same amount of petroleum since there are no substitutes for petroleum.

Question

Quizplus · Accepted Answer

When the price of petroleum increases relative to prices of other inputs, the total cost of production will increase. In order to minimize the costs of production, firms will try to substitute petroleum with other inputs to the production process. Thus, they will use less petroleum and more of other inputs, resulting in the choice C.

All Else Constant,as the Price of Petroleum Increases Relative to the Prices