A change in the relative price of an input in the cost minimization problem:
A)leads to an increase in the use of the cheaper input.
B)leads to less output being produced.
C)leads to more output being produced.
D)leads to higher profits.

Question

Quizplus · Accepted Answer

A change in the relative price of an input in the cost minimization problem leads to an increase in the use of the cheaper input. This is because the goal of cost minimization is to produce a given output at the lowest possible cost. Therefore, when the price of one input decreases relative to the others, it becomes relatively cheaper, and it becomes more cost-effective to use more of it and less of the relatively more expensive inputs. This allows the firm to produce the same output at a lower cost, leading to higher profits.

A Change in the Relative Price of an Input in the Cost