If the price of an input falls,a firm would increase the use of that input for two reasons:
A)The input is now more productive,and the firm can substitute this input for other relatively more expensive inputs.
B)The input is now more productive,and overall production costs are now lower,meaning a firm may choose to increase production.
C)Overall production costs are now lower and the firm can substitute this input for other relatively more expensive inputs.
D)Overall production costs are now lower and the firm will have more of other inputs to use with the one in question.

Question

Quizplus · Accepted Answer

C) is correct because when the price of an input falls, it becomes cheaper relative to other inputs, making it more cost-effective for a firm to substitute this cheaper input for other more expensive ones. This substitution can lead to lower overall production costs. The other options incorrectly suggest that the input becomes more productive simply because its price has fallen, which is not necessarily true. The productivity of an input is not directly determined by its price.

If the Price of an Input Falls,a Firm Would Increase