In the Short Run, an Increase in the Price of a Major

question 72

Multiple Choice

In the short run, an increase in the price of a major input such as oil will:

• A) decrease both the price level and the level of output.
• B) decrease the price level and increase the level of output.
• C) increase the price level and decrease the level of output.
• D) increase the price level and increase the level of output.

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Definitions:

Variable Manufacturing Costs

Costs of production that fluctuate with the volume of output, including expenses like raw materials and direct labor.

Variable Selling

Costs related to selling activities that vary with sales volume, distinct from fixed sales costs.

Fixed Manufacturing Overhead

Regular, unchanging costs associated with operating a manufacturing facility, excluding variable costs, such as rent, utilities, and salaries for management.

Margin of Safety

The difference between actual or expected sales and the break-even point, representing the cushion against potential losses.