If the price level rises in the short run, which of the following will result?

Question

Multiple choice question.

Firms' total output will not be affected.

Firms will want to produce less output.

Wages and other input prices also rise.

Firms' revenues and profits will increase.

Answer 1

If the price level rises in the short run, the most appropriate result from the options given is:

Firms' revenues and profits will increase.

In the short run, an increase in the price level typically leads to higher revenues for firms because they can sell their products at higher prices, while their costs (like wages and input prices) may not increase immediately. This can lead to an increase in profits until wages and input prices adjust to the new price level.