Production is an extremely complicated task, so economists make a number of simplifying assumptions. Which of the following assumptions do economists make in their basic model of producer behavior?

I. Multiproduct firms: All firms produce at least two goods.
II. Firms only use two inputs in the production process: capital and labor.
III. Cost minimization: Firms attempt to produce a fixed quantity of output at the lowest possible total cost.
IV. Firms can produce more output by using more inputs.
A) I and IV
B) I, II, III, and IV
C) II, III, and IV
D) I and III

Question

Production is an extremely complicated task, so economists make a number of simplifying assumptions. Which of the following assumptions do economists make in their basic model of producer behavior?
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I. Multiproduct firms: All firms produce at least two goods.
II. Firms only use two inputs in the production process: capital and labor.
III. Cost minimization: Firms attempt to produce a fixed quantity of output at the lowest possible total cost.
IV. Firms can produce more output by using more inputs.
A) I and IV
B) I, II, III, and IV
C) II, III, and IV
D) I and III

Quizplus · Accepted Answer

Economists often simplify the model of producer behavior by assuming that firms use only two inputs (capital and labor), aim to minimize costs while producing a fixed quantity of output, and can increase output by using more inputs. These assumptions help in analyzing and understanding the complex nature of production in a more manageable way.

Production Is an Extremely Complicated Task, So Economists Make a Number