Along a Short-Run Aggregate Supply Curve, a Decrease in the Price

question 48

Multiple Choice

Along a short-run aggregate supply curve, a decrease in the price level causes:

• A)firms to increase their production levels, as the lower prices will increase consumer demand.
• B)no change in output to occur, as at the macroeconomic level, the price level does not affect supply.
• C)firms to reduce their production levels.
• D)production levels to rise as the price of inputs become cheaper.

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Definitions:

Profit

The financial gain realized when the revenue earned from selling goods or services exceeds the costs, expenses, and taxes needed to sustain the activity, indicating the financial success of a business.

Total Revenue

The total amount of money received by a company from its sales of goods or services, before any expenses are subtracted.

Profit

The financial benefit that is realized when the amount of revenue gained from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Economic Profits

Profits exceeding the total cost of capital, including both the cost of debt and the opportunity cost of equity capital.