Which of the following scenarios would most likely lead a company to initiate a price increase?

• A. A decrease in consumer demand for the company's product
• B. An increase in production costs due to higher input prices
• C. The imposition of a government price ceiling below the equilibrium price
• D. The introduction of a price floor set below the current market price

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the relationship between production costs and pricing decisions. When production costs increase, the company faces higher expenses to produce the same quantity of goods, which often motivates the company to raise prices to maintain profitability.
2. Step 2: Analyze the effect of consumer demand changes. A decrease in consumer demand typically leads to lower prices, as companies try to attract buyers, so this scenario is unlikely to cause a price increase.
3. Step 3: Consider the impact of government-imposed price controls. A price ceiling set below the equilibrium price restricts the maximum price a company can charge, preventing price increases, while a price floor set below the market price is non-binding and does not affect pricing decisions.
4. Step 4: Compare all scenarios to identify which one directly pressures the company to increase prices. Increased production costs directly raise the company's cost structure, making a price increase the most likely response.
5. Step 5: Conclude that among the given options, an increase in production costs due to higher input prices is the scenario that most likely leads a company to initiate a price increase.