If a firm does not respond to changes in variable input prices, what is likely to happen?

When a firm does not respond to changes in variable input prices, the most likely outcome is that it might face higher marginal costs. Variable inputs are those that can be adjusted in the short run, such as labor and raw materials, which can directly impact the production process.

If the prices of these variable inputs increase and the firm does not adjust its usage of inputs accordingly—perhaps by reducing labor hours or substituting a more expensive material with a less costly alternative—the cost per additional unit of output, or marginal cost, will rise. This occurs because the firm continues to produce at the same level while incurring higher costs for each unit produced, leading to an inefficiency in production.

In contrast, if the firm does not respond to the changes in input prices, total variable costs could remain unchanged if input levels are held constant, but this would not accurately reflect the new economic reality of higher costs. Additionally, average total costs could only remain constant if both variable and fixed costs stabilized despite changing input prices, which is unlikely given the pressure of variable costs increasing. Meanwhile, production levels might not be affected in the short term, but this stance could lead to unsustainable practices that ultimately impact the firm’s ability to operate efficiently over time.