In the Short Run, Firms Expand Their Production When the Price

question 123

Multiple Choice

In the short run, firms expand their production when the price level rises because

• A) the money wage rate remains constant so the higher prices for their products makes it profitable for firms to expand production.
• B) each firm must keep its production up to the level of its rivals, and some firms will expand production as the price level increases.
• C) the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits.
• D) firms can increase their profits by increasing their maintenance.

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Definitions:

Money Supply

The sum of all financial assets, including cash, coins, and bank account balances, present in an economy at any given moment.

Real Output

The quantity of goods and services produced in an economy, adjusted for inflation to reflect true productivity and economic performance.

Aggregate Demand

The sum of all requests for products and services in an economic system, marked by a certain price level during a defined period.

Price Level

A calculation of the current average prices for a comprehensive range of goods and services in the economy, usually tracked through a price index.