One implication of the fact that profit functions are convex in prices is that firms will always prefer:
A)stable input and output prices.
B)input and output prices that fluctuate about a given level.
C)stable input prices and fluctuating output prices.
D)fluctuating input prices and stable output prices.

Question

Quizplus · Accepted Answer

Convex profit functions imply that firms benefit from price fluctuations because they can exploit the upsides of price changes, leading to higher average profits compared to stable prices.

One Implication of the Fact That Profit Functions Are Convex