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The short-run aggregate supply curve is positively sloped because:
A. wages and other costs of production respond immediately to changes in prices.
B. profit is lower when prices increase, so output decreases.
C. workers are willing to work for lower wages rather than be laid off.
D. higher prices lead to higher profit and higher output.
 
 
 

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Chika Ilonah
Chika IlonahLv10
9 Oct 2020
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Related questions

The Short Run Aggregate Supply curve is upward sloping because

A) a higher aggregate price level leads to lower output as costs of production increase.
B) a higher aggregate price level leads to higher output since most production costs are fixed in the short run.
C) a lower aggregate price level leads to higher output since production costs tend to fall in the short run.
D) a lower aggregate price level leads to higher profit and higher productivity.


1. In economy A, all workers agree in advance on the nominal wages that their employers will pay them. In economy B, half of all workers have these nominal wage contracts. In contrast, the other half have indexed employment contracts, so their wages rise and fall automatically with the price level.

A. According to the sticky-wage theory of aggregate supply, which economy has a more steeply sloped short-run aggregate-supply curve?
B. In which economy would a 5 percent increase in the money supply have a larger impact on output in the short run?
C. In which economy would it have a larger impact on the price level in the short run?

2. When output rises, unemployment falls.

a. TRUE  
b. FALSE  
 
3. How do prices change due to an economic contraction that is caused by a shift in aggregate demand?
  A. They rise in the short run and fall back to their original level in the long run.  
  B. They rise in the short run and rise even more in the long run.  
  C. They fall in the short run and rise back to their original level in the long run.  
  D. They fall in the short run and fall even more in the long run.

4. What happens to sales and profit during recessions?
  A. sales rise and profits fall  
  B. profits fall and sales rise  
  C. sales and profits fall  
  D. sales and profits rise
5. Which of the following explains why production rises in most years?
  A. increases in prices of goods and services  
  B. increases in stock prices  
  C. aging population  
  D. technological innovation  




 

Question:

Is it true that in a short-run production process, the marginal cost curve eventually slopes upward because firms have to pay workers a higher wage rate as they produce more output? Explain your answer.

Answer:

According to the definition of the short-run in Investopedia, the short-run, in economics, expresses the concept that an economy behaves differently depending on the length of time it has to react to certain stimuli. The short-run does not refer to a specific duration of time but rather is unique to the firm, industry, or economic variable being studied. A key principle guiding the concept of short-run and long-run is that in the short-run, firms face both variable and fixed costs, which means that output, wages and prices do not have full freedom to reach a new equilibrium. Most businesses make decisions not only about how many workers to employ at any given point in time (i.e. the amount of labor) but also about what scale of an operation (i.e. size of factory, office, etc.) to put together and what production processes to use. In contrast, economists often define the short-run as the time horizon over which the scale of operation is fixed and the only available business decision is the number of workers to employ. Technically, the short-run could also represent a situation where the amount of labor is fixed and the amount of capital is variable, but this is fairly uncommon. The logic is that even taking various labor laws as given, it's usually easier to hire and fire workers than it is to significantly change a major production process or move to a new size of factory or office. In the short-run, one factor of production is fixed, e.g. capital. This means that if a firm wants to increase output, it could employ more workers, but not increase capital in the short-run (it takes time to expand.) Therefore in the short-run, we can get diminishing marginal returns, and marginal costs may start to increase quickly. Also, in the short-run, we can see prices and wages out of equilibrium, e.g. sudden rise in demand, may lead to higher prices, but firms don't have the capacity to respond and increase supply.


Tejvan Pettinger. (2015). Short-run, long-run, very long-run. Glossary Terms. Economics help blog. NY: Helping to Simplify Economic.
Retrieved from: http://www.economicshelp.org/blog/glossary/short-run-long-run-very-long-run/
Short-Run. Short-Run Definition | Investopedia
Retrieved from http://www.investopedia.com/terms/s/shortrun.asp#ixzz4KO1YXsri

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