An increase in the price of one input:
A)will always rotate the long-run total cost curve upward.
B)may rotate the long-run total cost curve upward or may leave the long-run total cost unchanged.
C)could actually rotate the long-run total cost downward.
D)will have no effect on the long-run total cost curve as long as long as the firm is using positive amounts of both inputs.

Question

Quizplus · Accepted Answer

An increase in the price of one input may lead to the substitution of another input that has become relatively cheaper, which could result in a lower overall cost of production. However, if there are no substitutes available or if the firm is unable to substitute the input, the cost of production may increase, leading to an upward rotation of the long-run total cost curve. Therefore, the long-run total cost curve may either rotate upward or remain unchanged depending on the specific circumstances. An increase in the price of one input may have no effect on the long-run total cost curve if the firm can easily switch to another input that is less expensive. However, if the input is essential to production and cannot be substituted easily, then the long-run total cost curve will rotate upward, indicating that it costs more to produce the same level of output. Therefore, option B is the best choice as it covers both scenarios.

An Increase in the Price of One Input