Under what conditions should a manager increase, decrease, hold constant, or increase a firms output or...

Under what conditions should a manager increase, decrease, hold constant, or increase a firms output or price. How does current interest rate factor in this decision?

Expert Solution

Managers should increase the output with increase in price and vice versa, because it will help them to maximize the profit while wage and input costs remain sticky in nature. Further, the managers, should decrease the output, with increase the price of input factors of production and vice versa. Interest rate also plays an important role. A lower rate of interest, means increase in consumption spending and firms also make investments due to the availability of the cheap funds. So, one way the demand increases, and another, way the supply increases by the managers' initiatives towards the investments.

Besides, the presence of substitutes, degree of elasticity and time duration, also affects the managers' ability to change the output or price. inelastic demand makes managers to increases the price to gain higher revenue, while short run, makes managers to be unable to increase the output. Price can also not be increased due to different cost such as menu cost associated with it. Further, an increase in the price of one substitute, also increases the demand of another substitute product and a manager increases the output.

Rahul Sunny answered 2 years ago

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