When the Actual Change in the Price Level Differs from Its

question 95

Multiple Choice

When the actual change in the price level differs from its expected change,which of the following can explain why firms might change their production?

• A)both menu costs and mistaking a price level change for a change in relative prices
• B)menu costs but not mistaking a price level change for a change in relative prices
• C)mistaking a price level change for a change in relative price but not menu costs
• D)neither menu costs nor mistaking a price level change for a change in relative prices

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Definitions:

Total Expenses

The sum of all costs and expenses incurred by a business or individual, including operating expenses, cost of goods sold, and taxes.

Fixed Cost

Costs that do not change with the level of production or sales activities within a certain range or period.

Flexible Budget

A budget with the capacity to alter in response to shifts in activity volume or level.

Employee Salaries

The total amount paid to employees for their services over a specific period.