Resource prices that are fixed by long-term contracts help explain why, in the short run, firms will
A) increase output when product prices increase.
B) keep production levels constant when product prices decrease.
C) keep their product prices constant even if the demand for their good increases.
D) keep their product prices constant even if the demand for their good decreases.

Question

Quizplus · Accepted Answer

In the short run, if resource prices are fixed by long-term contracts, firms can increase output when product prices increase because their costs remain stable, allowing them to take advantage of higher prices to increase profits.

Resource Prices That Are Fixed by Long-Term Contracts Help Explain