In the short run, firms expand their production when the price level rises because
A) the money wage rate remains constant so the higher prices for their products makes it profitable for firms to expand production.
B) each firm must keep its production up to the level of its rivals, and some firms will expand production as the price level increases.
C) the higher prices allow the firm to hire more workers by offering higher wages, thereby increasing productivity and profits.
D) firms can increase their profits by increasing their maintenance.

Question

Quizplus · Accepted Answer

In the short run, when the price level rises, firms find it profitable to expand production because the money wage rate (the cost of labor) tends to remain constant in the short term. This means that the cost of producing goods does not increase as quickly as the selling price, leading to higher profits for firms that expand production. Choices B, C, and D do not directly address the relationship between constant short-term wage rates and the profitability of expanding production in response to higher prices.

In the Short Run, Firms Expand Their Production When the Price