If firms are producing below capacity,
A) it is not possible to increase output
B) they will charge higher prices to maintain profit levels
C) resources, especially labor, are in short supply
D) output can be expanded by hiring extra workers
E) an increase in aggregate demand will force firms into bankruptcy

Question

Quizplus · Accepted Answer

If firms are producing below capacity, it means that they have unused resources, including labor. Hiring extra workers will allow firms to expand output without incurring additional costs, and it may even lower costs per unit of output due to economies of scale. Therefore, output can be expanded by hiring extra workers.

If Firms Are Producing Below Capacity