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

Question

Quizplus · Accepted Answer

When the overall price level in the economy rises, the prices for the goods and services produced by firms also rise. However, the money wage rate (the wage rate in terms of dollars) remains constant in the short run, meaning that firms' costs of production do not rise as much as their revenues from selling their product. This allows firms to expand their production and increase their profits.

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