Question

The operations vice president is adjusting the production quantities for the upcoming month of March for the coal company. Last month the price of a ton of coal was $45, and it has now increased to $64 per ton. According to the law of supply, what would be a rational response of the VP of operations in adjusting his coal output with the change in the market price

Answer 1

Increase production and hire more workers

Step-by-step explanation:

The law of supply states that an increase in price results in an increase in quantity supplied, and a decrease in price also results in a decrease in quantity supplied. The supply curve is upward sloping as illustrated in the attached diagram.

Last month the price of a ton of coal was $45, and it has now increased to $64 per ton. According to the law of supply the operations vice president should increase quantity produced and also hire more workers to enable increased production.

This is an ideal situation in a perfectly competitive market. However when supply is inelastic there is no reasonable change in supply with change in price.