Suppose the Expected Price Level Falls Below the Actual Price

question 110

Multiple Choice

Suppose the expected price level falls below the actual price level.In terms of production, how will firms react?  

• A) They will increase production in the short run. 
• B) They will decrease production in the short run. 
• C) They will maintain production in the short run but will increase prices. 
• D) They will maintain production in the short run but will decrease prices.

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Definitions:

Contribution Margin Ratio

A measure expressing how a product's selling price exceeds variable costs, shown as a percentage of the sales price.

Fixed Expenses

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance.

Contribution Margin

The difference between sales revenue and variable costs, indicating how much contributes to covering fixed costs and generating profit.

Variable Expenses

Costs that change in proportion to the activity of a business, such as sales commissions or raw materials.