Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The firm will significantly increase production to meet demand.
B
The firm will maintain current production levels despite demand.
C
The firm will only increase production minimally regardless of price changes.
D
The firm will decrease production due to anticipated future price drops.
Understanding the Answer
Let's break down why this is correct
Answer
When a firm has a price elasticity of supply greater than one, it means that the firm can respond quickly to changes in demand. In this case, since there is a sudden increase in demand for its product, the firm is likely to increase its production significantly. This is because a higher elasticity indicates that the firm can increase output without facing too many obstacles, such as limited resources or production capacity. For example, if a clothing company notices a surge in demand for a specific style of jacket, it can quickly ramp up production by using extra shifts or hiring temporary staff. As a result, the firm can take advantage of the trend and maximize its profits by meeting the higher demand efficiently.
Detailed Explanation
When a firm has a price elasticity of supply greater than one, it means they can easily increase production. Other options are incorrect because Some might think the firm will keep making the same amount no matter what; It's a common mistake to believe that firms only make small changes in production.
Key Concepts
Price Elasticity of Supply
Market Demand
Producer Behavior
Topic
Price Elasticity of Supply
Difficulty
hard level question
Cognitive Level
understand
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