According to the Misperceptions Theory of the Short-Run Aggregate Supply

question 67

Multiple Choice

According to the misperceptions theory of the short-run aggregate supply curve,if the price level increases more than people expect,how do firms change their behaviour?

• A) They believe that the relative price has decreased,so they increase production.
• B) They believe that the relative price has decreased,so they decrease production.
• C) They believe that the relative price has increased,so they increase production.
• D) They believe that the relative price has increased,so they decrease production.

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Definitions:

Manufacturing Costs

Expenses directly related to the production of goods, including raw materials, labor, and overhead.

Prime Costs

The sum of direct materials cost and direct labor cost, representing the primary costs involved in producing a product.

Finished Goods Inventory

The stock of completed products ready for sale but not yet sold, representing a current asset on the balance sheet.

Manufacturer

A company or individual that creates goods using raw materials and components through various processes, labor, and machinery.