In the short-run an increase in the costs of production makes
A)output and prices rise.
B)output rise and prices fall.
C)output fall and prices rise.
D)output and prices fall.

Question

Quizplus · Accepted Answer

An increase in the costs of production will lead to a decrease in the supply of goods as producers will reduce output in response to the higher costs. With lesser supply, the demand for the goods will remain unchanged leading to a rise in prices. Thus, the output will fall and prices will rise.

In the Short-Run an Increase in the Costs of Production