The fact that some resource prices are fixed by contracts help explain why firms:
A)increase output in the short run when the price level increases.
B)keep production levels constant in the short run when the price level decreases.
C)sell output in the short run at fixed prices.
D)increase output in the long run when the price level increases.
E)decrease production when nominal wages fall in the long run.

Question

Quizplus · Accepted Answer

When resource prices are fixed by contracts, firms can increase their profit margins by increasing output in response to a price level increase, as their costs do not immediately adjust to the higher price level.

The Fact That Some Resource Prices Are Fixed by Contracts