According to the misperceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had a. increased, so it would decrease production. b. decreased, so it would increase production. c. decreased, so it would decrease production. d. increased, so it would increase production.

Option C

Explanation:

In simple words, The misconceptions principle or theory in short run maintains that when a retailer sees its commodity prices fall, it makes an incorrect inference that its relative values have decreased as well. The confusion appears to cause dealers to provide the marketplace with less volume. Thus, from the above we can conclude that the correct option is C .

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