Price of Related Inputs

Cost of Production: The cost of production is the total expense incurred by a firm in producing goods or services. It includes costs such as wages, rent, raw materials, and utilities.

Factor Market: The factor market is where firms purchase the resources (inputs) they need for production, such as labor and capital.

Input Substitution: Input substitution occurs when firms replace one input with another due to changes in their relative prices. For example, if the price of steel increases significantly, a car manufacturer might switch to using aluminum instead.