Assume that the production technology required to produce goods X and Y are very similar. If a firm that is producing good X notices that the market price of good Y is rising, it will:

Question

Quizplus · Accepted Answer

Since the production technology for both goods is similar, the firm can easily transition its production from good X to good Y. As the market price of good Y is rising, the firm can take advantage of the price increase and switch to producing good Y to maximize its profits. The other options are not viable as intensifying production of good X or anticipating a price increase for good X would not directly benefit the firm in response to the rising price of good Y, and charging a higher price for good X would not necessarily be profitable if the market demand for good X remains unchanged.

Assume That the Production Technology Required to Produce Goods X