If a firm is producing at minimum cost and experiences a 4% increase in all input prices
A)output will fall by 4%
B)profits will fall by 4%
C)demand for all inputs will fall by 4%
D)total costs increase by 4%

Question

Quizplus · Accepted Answer

If input prices increase by 4%, the cost of producing each unit of output will also increase by 4%. Therefore, the total costs of production will increase by 4%. If the firm continues to produce the same quantity of output, profits will decrease because revenues will remain the same while costs have increased. However, it is not possible to determine if output or demand for inputs will also be affected by the increase in input prices.

If a Firm Is Producing at Minimum Cost and Experiences