Firms would increase output as a reaction to
A) unplanned inventory increases.
B) decreased demand for output.
C) unplanned inventory reductions.
D) increases in costs of resources.

Question

Quizplus · Accepted Answer

If there are unplanned inventory reductions, firms may increase their output to meet the demand and replenish their inventory levels. A is incorrect because unplanned inventory increases may signal that there is already too much output being produced. B is incorrect because decreased demand for output would likely lead to a decrease in output. D is incorrect because increases in costs of resources may lead firms to cut back on their output to maintain profitability.

Firms Would Increase Output as a Reaction to