What do fixed resource prices help explain?
A) why firms increase output in the short run when the price level increases
B) why firms keep production levels constant in the short run when the price level decreases
C) why firms sell output in the short run at fixed prices
D) why firms increase output in the long run when the price level increases

Question

What do fixed resource prices help explain?  
A) why firms increase output in the short run when the price level increases 
B) why firms keep production levels constant in the short run when the price level decreases 
C) why firms sell output in the short run at fixed prices 
D) why firms increase output in the long run when the price level increases

Quizplus · Accepted Answer

Fixed resource prices, such as wages and rental rates, are slow to adjust in the short run. This helps explain why firms might increase output when the price level increases, as their costs (due to fixed resource prices) do not immediately rise with prices, allowing for potentially higher profits.

What Do Fixed Resource Prices Help Explain