When supply price increase in the short run, the profit of the producer________:a)Increasesb)Decreasesc)Remains constantd)Decreases marginallyCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Correct answer is option A. Increases
Explanation:
When the supply price increases in the short run, the profit of the producer increases.
In conclusion, when the supply price increases in the short run, the profit of the producer increases due to a higher selling price, short-run adjustments, and relatively constant fixed and variable costs.

Answer

As output increases average fixed cost

Answer

Increase in Supply Price and its Impact on Producer Profit in the Short Run

When the supply price increases in the short run, the profit of the producer increases. This can be explained through the following points:

1. Supply and Demand Relationship:
In the short run, the supply of goods or services is relatively fixed, meaning that producers cannot easily increase or decrease their production levels. On the other hand, demand for the product may still remain constant or even increase. When the supply price increases, it means that producers are able to sell their goods or services at a higher price. This higher price increases the revenue for the producer, resulting in an increase in profit.

2. Maintaining Profit Margin:
When the supply price increases, producers are able to charge more for their products, which allows them to maintain or even increase their profit margin. Profit margin is the difference between the cost of production and the selling price of the product. By increasing the selling price, producers can cover their costs and make a higher profit on each unit sold.

3. Limited Competition:
In the short run, the number of producers in the market may be limited, which reduces competition. When the supply price increases, producers have the advantage of being able to charge higher prices without fear of losing customers to competitors offering lower prices. This lack of competition allows producers to enjoy higher profit levels.

4. Cost Pass-through:
When the supply price increases, producers may also pass on some or all of the cost increase to the consumers. This means that the burden of the higher supply price is shifted to the customers in the form of higher prices. As a result, the profit of the producer increases as they are able to cover the higher costs while maintaining or even increasing their profit margin.

In conclusion, when the supply price increases in the short run, the profit of the producer increases. This is mainly due to the ability to charge higher prices, maintain profit margins, limited competition, and cost pass-through to consumers.

Answer

A

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