The main reason that firms adjust their output when the price level changes is that
A)uncertainty causes a drop in output.
B)taxes cause a supply-side reaction.
C)their profit margins change.
D)increased risks lead to a change in output.
E)All of the above are correct.

Question

Quizplus · Accepted Answer

Firms adjust their output when the price level changes because their profit margins change. As prices increase, the profit margins on each unit sold also increase, providing an incentive for firms to produce more output. Similarly, when prices decrease, profit margins decrease, providing an incentive for firms to produce less output. The other choices are not necessarily related to changes in output in response to price level changes.

The Main Reason That Firms Adjust Their Output When the Price