Question

TRUE or FALSE: Indicate whether the following questions are true or false and then EXPLAIN why. If the actual price level is less than the expected price level reflected in long-term contracts, firm owners will find production more profitable than they had expected.

Answer 1

FALSE- Actual price level and expected price level should be at par.

Explanation:

Reasons why Actual price level and Expected price level should be somewhat equal are :-

1. Long term Profitability - As the business is assumed to go for long it is it beneficial to have the actual and expected prices to be the same.

2. Decrease Complexity - More the simple organisational structure of pricing , better the organisational growth would be.

3. Transparency - The business should have a clear pricing strategy by having the same actual and expected price.