Consider a firm which is initially in long- run equilibrium and is faced with an increase in the price of a variable input, z. In that case, the:
A)firm will demand more if the input is inferior.
B)input quantity demanded will be reduced more in the long run.
C)firm's demand for that input will shift down.
D)input quantity demanded will be reduced more in the short run.

Question

Quizplus · Accepted Answer

In the long run, firms have more flexibility to adjust all inputs, including substituting away from the more expensive input, leading to a larger reduction in the quantity demanded compared to the short run.

Consider a Firm Which Is Initially in Long- Run Equilibrium