According to misperceptions theory, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, how the firm may be affected?
A)It may believe that the relative price has increased, so it would increase production.
B)It may believe that the relative price has increased, so it would decrease production.
C)It may believe that the relative price has decreased, so it would increase production.
D)It may believe that the relative price has increased, so it would decrease production

Question

Quizplus · Accepted Answer

The firm may perceive the higher-than-expected inflation as an increase in the relative price of its goods, leading it to increase production.

According to Misperceptions Theory, If a Firm Thought That Inflation