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Price of Related Inputs

Definition

The price of related inputs refers to the cost of using other resources or factors of production in the production process. It includes inputs such as raw materials, labor, and capital.

Analogy

Think of the price of related inputs as ingredients for a recipe. Just like how you need various ingredients to make a dish, businesses require different resources (inputs) to produce goods or services. The price of these inputs affects the overall cost and profitability of the business.

Related terms

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.