Which of the following situations is most likely to generate the largest output effect from a decrease in the price of one of a firm's inputs?
A) The demand for a firm's product is inelastic.
B) The demand for a firm's product is elastic.
C) The inputs used in production are highly substitutable.
D) The inputs used in production are highly complementary.

Question

Quizplus · Accepted Answer

When the demand for a firm's product is elastic, a decrease in the price of an input can lead to a significant reduction in production costs, allowing the firm to lower its product prices. This can result in a substantial increase in quantity demanded, thereby generating a larger output effect.

Which of the Following Situations Is Most Likely to Generate