Among the reasons firms find it profitable to expand output in the short run when the price level is rising faster than expected is that
A)all firms' costs are contractually fixed
B)prices for firms' output are rising with the price level
C)firms are interested in minimizing cost per unit,not total profits
D)all firms' costs are variable
E)the quantity of resources available to the economy is fixed

Question

Quizplus · Accepted Answer

When the general price level is rising, prices for the firms' output are also rising. This means that, in the short run, firms can increase their revenues faster than their costs are increasing, leading to higher profits. Therefore, it can be profitable for firms to expand output in the short run when the price level is rising faster than expected.

Among the Reasons Firms Find It Profitable to Expand Output