A rising price level in the short run may create an incentive for firms to increase production because
A)costs of production will increase
B)total sales revenue will decrease
C)profits will increase
D)costs of production will increase faster than total revenue
E)output prices are generally not fixed by contract whereas resource prices are

Question

Quizplus · Accepted Answer

A rising price level in the short run means that the prices firms can charge for their goods and services have increased. If firms can increase their production to meet the higher demand, they can sell more at the higher prices and make more profits. Therefore, a rising price level creates an incentive for firms to increase production to take advantage of the higher prices.

A Rising Price Level in the Short Run May Create