Asked by Shanti Jones on May 16, 2024
Verified
A competitive firm produces a single output using several inputs.The price of output rises by $4 per unit.The price of one of the inputs increases by $2 and the quantity of this input that the firm uses increases by 8 units.The prices of all other inputs stay unchanged.From the weak axiom of profit maximization we can tell that
A) the output of the good must have increased by at least 4 units.
B) the inputs of the other factors must have stayed constant.
C) the output of the good must have decreased by at least 2 units.
D) the inputs of at least one of the other factors must have decreased by at least 8 units.
E) the inputs of at least one of the other factors must have increased by at least 8 units.
Weak Axiom
Often associated with the Weak Axiom of Revealed Preference (WARP), which is a condition used in consumer choice theory to describe consistent consumer behavior.
Profit Maximization
The strategy of adjusting production and sales to achieve the maximum possible profits.
Input Increases
A situation where the amount, quality, or number of resources used in production grows, potentially leading to an increase in output.
- Discuss the concept of weak axiom of profit maximization (WAPM) and its implications.
Verified Answer
AH
Ashley HaringaMay 21, 2024
Final Answer :
A
Explanation :
DThe weak axiom of profit maximization implies that if the price of an output increases, the firm will produce more of that output to maximize profits, hence A is correct. Additionally, if the firm uses more of an input whose price has increased, it must be substituting away from other inputs to afford this, implying that the quantity of at least one other input must decrease, making D correct.
Learning Objectives
- Discuss the concept of weak axiom of profit maximization (WAPM) and its implications.