Assuming that resources are specialized, the opportunity cost of an item increases as production of it rises.Therefore, we expect that firms will produce more if
A)the price increases.
B)the price decreases.
C)the opportunity cost is greater than the price.
D)government asks firms to produce more.
E)the income of buyers increases.

Question

Quizplus · Accepted Answer

If the price of a good increases, firms are more likely to produce more of it because they can earn more revenue and profit from selling each unit. This is because of the law of supply, which states that as the price of a good or service increases, the quantity supplied of that good or service will also increase, ceteris paribus. This means that firms will be willing to produce more of a good at higher prices because the opportunity cost of not producing it (i.e. lost revenue and profit) is greater than the opportunity cost of producing it (i.e. using resources that could have been used elsewhere).

Assuming That Resources Are Specialized, the Opportunity Cost of an Item