A firm produces one output using one input.When the cost of the input was $3 and the price of the output was $3, the firm used 6 units of input to produce 18 units of output.Later, when the cost of the input was $7 and the price of the output was $4, the firm used 5 units of input to produce 20 units of output.This behavior
A)is consistent with WAPM.
B)is not consistent with WAPM.
C)is impossible no matter what the firm is trying to do.
D)suggests the presence of increasing returns to scale.
E)suggests the presence of decreasing returns to scale.

Question

Quizplus · Accepted Answer

This behavior is not consistent with the Weak Axiom of Profit Maximization (WAPM), which states that a firm will choose the level of input usage that maximizes its profits at any given output level, assuming that other factors remain unchanged. In this case, the firm used more input to produce the same amount of output when the cost of the input increased and the price of the output remained the same, which suggests that it did not maximize its profits according to WAPM.

A Firm Produces One Output Using One Input