The hair inside a Yorkie's ears grows all the way inside the ear. It is important to pluck the hair out , because it can cause ear infections. This is what my vet told me. I have my vet do this for me. I know YT members do it themselves, and some use a powder that helps loosen the hair out.
I also believe shaving the ears on the outside is done at least 3/4 because this will make the ears lighter and easier for the ears to stand up. As soon as all the hair was off my Suzi's ears , hers were up . Before that she could not stand them up. Since then , they have ben standing up all the time
I decided to leave it up to my groomer to do all of it though. Because Suzi had behaved the same way as your Libbie .