Question

Nation Furniture is a furniture manufacturing facility. Its workers just signed a two-year contract. The price level in the economy has increased. Answer the following set of questions based on the short run:

a. if the price level increases, input prices will: ______
1. increase.
2. remain constant.
3. decrease.

b. if the price level increases, output prices will:_________
1. decrease.
2. remain constant.
3. increase.

c. in the short run, the firm will experience a(n): _________
1. increase in economic profits.
2. decrease in economic profits.
3. increase in economic losses.

Answer 1

Answer: See explanation

Step-by-step explanation:

a. Remain constant

From the question, we are informed that Nation Furniture workers just signed a two-year contract. This then means that even though there is an increase in price level, it doesn't affect the prices of inputs as they still remain constant.

b. Increase

We should note that when there is a rise in the price level, this will also bring about an increase in the prices of the output.

c. Increase in economic profit

The firm will have a rise in the economic profit in the short run. There'll be an increase in revenue which ultimately increase economic profit as well since input prices remain the same.