Refer to the Diagram Given Below

question 8

Multiple Choice

Refer to the diagram given below. Assume that the nominal wages of workers in an economy are initially set on the basis of the price level P₂ and that the economy is initially operating at the full-employment level of output Q_f.In the long run, an increase in the price level from P₂ to P₃ will:

• A)increase the real output from Q_f to Q₂.
• B)shift the aggregate supply curve from AS₂ to AS₁.
• C)decrease the real output from Q₂ to Q₁.
• D)not change the level of real output.

---

Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs – direct materials, direct labor, and both variable and fixed overhead – in the cost of a product.

Contribution Margin

A financial metric that represents the difference between a product's sales revenue and its variable costs.

Variable Costing

A costing method that includes only variable manufacturing costs—direct materials, direct labor, and variable manufacturing overhead—in the cost of a unit of product.

Absorption Costing

A costing method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a unit of product.