A perfectly competitive firm is producing at a positive level of output using two resources in the price of one of those resources rises
A)the firm will raise its output price
B)the average product of that resource will fall
C)the firm's average costs will fall
D)the quantity demanded of that resource will fall

Question

Quizplus · Accepted Answer

If the price of one of the resources used by a perfectly competitive firm rises, the firm will face an increase in its production costs. To maintain profits, the firm will need to adjust its level of output by reducing the quantity demanded of the resource that has become more expensive. This will lead to a decrease in the average product of that resource and may cause the firm's total output to decline as well. Therefore, the best choice is D, which states that the quantity demanded of that resource will fall.

A Perfectly Competitive Firm Is Producing at a Positive Level