According to Misperceptions Theory, If a Firm Thought That Inflation

question 20

Multiple Choice

According to misperceptions theory, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, how the firm may be affected?

• A)It may believe that the relative price has increased, so it would increase production.
• B)It may believe that the relative price has increased, so it would decrease production.
• C)It may believe that the relative price has decreased, so it would increase production.
• D)It may believe that the relative price has increased, so it would decrease production

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Definitions:

Entry

The act of beginning or entering into a particular sphere or market, often used in the context of firms entering an industry.

MC of Production

The additional cost incurred by producing one more unit of a good or service, often denoted as marginal cost.

Long-Run Industry

An economic concept where all inputs and operations are adjustable, allowing for new firms to enter or exit the market, affecting supply and price levels.

Profit-Maximization

Profit-maximization is the process by which a firm determines the price and output level that returns the greatest profit, focusing on key variables like sales and costs.