Price Increase Boosts Firm Profits

Steps:

• Identify the supply curve: it shows quantity supplied at different prices.
• Note price rises from P1 to P2: firms supply more at higher prices.
• Calculate impact: higher price means more revenue for same output.
• Determine benefit: increased revenue raises profits if costs stay constant.

Why A is correct:

• Profit equals total revenue minus total costs; higher price increases revenue (price × quantity), allowing greater profits.

Why the others are wrong:

• B: Fixed costs are unchanging with output or price; higher price doesn't affect them.
• C: Higher prices attract more firms to enter, not fewer, due to profit opportunities.
• D: Fixed costs aren't "bought" based on price; this misapplies cost concepts.

Final answer: A