A basic assumption of production is that the firm:
A) cannot borrow money to finance its input expenditures.
B) can buy as much labor and capital as it desires at fixed prices.
C) must bid up the prices of labor and capital in order to produce more output.
D) has a downward-sloping budget constraint.

Question

Quizplus · Accepted Answer

A basic assumption in many economic models of production is that the firm can purchase as much labor and capital as it needs at fixed prices, implying that these input prices do not change with the quantity purchased. This simplifies the analysis by not requiring the model to account for changing input costs as production scales up.

A Basic Assumption of Production Is That the Firm