When prices rise but wages remain fixed in the short run Afi

When prices rise, but wages remain fixed in the short run? A)firms face profit opportunities, because real wages fall. B) firms reduce output, because the costs of their inputs increase. c) firms\' profits decline, because they are unable to attract workers at the old wage. D) firms\' profits remain unchanged, because in the long run wages will rise to catch up with the increase in prices. The short-run aggregate supply curve illustrates ? A) how output responds to changes in prices before all prices have adjusted. B) how output responds to changes in prices after all prices have adjusted. C)how producers raise prices in response to increases in their costs. D) how consumers reduce spending in response to increases in prices.

Solution

Q1. When prices rise, but wages remain fixed in the short-run then this implies that while firm will get higher price for each unit it sold, it will be paying the same wage rate as before.

This means while, in short-run, total revenue of firm will increase, its total cost will remain same. In fact, in real terms, the rise in price level will reduce the real wage rate that the firm will pay.

With total cost remaining same (or declining in real sense), this increase in total revenue will result in increased profit for firms in the short-run.

Thus, when price rises, but wages remain fixed in the short-run, firms face profit opportunity, because real wages fall.

Hence, the correct answer is option (A).