If a firm expects that the price of its product will be higher in the future than it is today
A) the firm will go out of business.
B) the firm has an incentive to increase supply now and decrease supply in the future.
C) the firm has an incentive to decrease quantity supplied now and increase quantity supplied in the future.
D) the firm has an incentive to decrease supply now and increase supply in the future.

Question

Quizplus · Accepted Answer

If the firm expects higher prices in the future, it has an incentive to hold back supply now and increase supply in the future, when prices are higher. This is because the firm can earn a higher profit by selling its product at the higher price in the future rather than selling it at the lower price now. Therefore, the firm has an incentive to decrease supply now and increase supply in the future.

If a Firm Expects That the Price of Its Product