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Consider the following general linear supply function:

Qs = -18 + 2 P - 3 PI

where P is the price of the good and PI is the price of a key input in production.

a. Interpret the numerical value of the slope coefficient on the price of the input (PI).

b. The negative slope coefficient on PI, implies an inverse relationship between the price of the input PI and quantity supplied Qs, ceteris paribus. Is this inverse relationship consistent with supply theory? describe why an inverse relationship is or is not predicted by supply theory.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M945068

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