Which of the Following Best Explains Why Prices Tend to Be

question 239

Multiple Choice

Which of the following best explains why prices tend to be inflexible even when demand changes?

• A) Government regulations limit the number of times a firm can change prices in a year.
• B) In most industries the profit-maximizing price does not change even when demand changes.
• C) Production costs do not tend to change when a firm varies its level of output.
• D) Firms may be reluctant to change prices for fear of setting off a price war or losing customers to rivals.

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Definitions:

Wage Rate

The amount of money paid to an employee per unit of time, often hourly or annually, for their work or services.

MRP of Labor

Marginal Revenue Product of Labor, which measures the change in total revenue that results from employing one additional unit of labor.

MRP of Land

The marginal revenue product of land refers to the additional revenue earned from the use of an extra unit of land, holding other factors constant.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a resource, such as labor or capital.