If firms collectively increase the level of markup that they charge on goods and services, what effect will this have on equilibrium output and the equilibrium price level in the medium run? a) neither prices nor output will change b) price will increase while output will remain the same c) price will increase and output will decrease d) price will increase and output will increase e) price will decrease and output will increase

The correct answer to the given question is option b) price will increase while output will remain the same.

In the given scenario, the price of goods will increase if the firms collectively increase the level of markup they charge on goods and services because the price of a given good is the sum of the total production and selling cost & the desired markup.

In the medium term, since all the firms are going to collectively increase the price, the equilibrium output or the demand for goods and services will remain the same.This is because the customers will have no option but to buy the goods and services at a higher price. Moreover, the increase in prices will translate into higher revenues and profits which in turn may translate into higher wages and salaries for employees.