Which of the following would generally cause firms to expand output in the short run?
A) a proportional increase in the prices of goods and services and the costs of producing them
B) higher profit margins as the result of an unexpected increase in the prices of goods and services
C) an unexpected reduction in aggregate demand
D) an increase in wages and the prices of other resources

Question

Quizplus · Accepted Answer

An unexpected increase in the prices of goods and services would lead to higher profit margins, giving firms the incentive to expand output in the short run. Option A is unlikely to result in an expansion of output as costs have also increased proportionally. Option C would lead to a decrease in output as firms respond to lower demand. Option D would increase costs for firms, leading to a decrease in output.

Which of the Following Would Generally Cause Firms to Expand