Consider the Following Phillips Curve Diagram: Suppose an Expansionary

question 18

Essay

Consider the following Phillips curve diagram: Suppose an expansionary monetary policy has moved the economy from point A to point B.Is point B a long-run equilibrium? If yes, explain why.If no, explain how the economy will get to new long-run equilibrium.

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Definitions:

Minimum Efficient Scale

The smallest level of production at which long-run total average costs are minimized.

Diseconomies of Scale

A situation where a company or organization grows so large that the costs per unit increase, leading to reduced efficiency.

Long-run Average Total Cost

Represents the average cost per unit of output in the long-term, where all inputs are variable, allowing for the adjustment of all factors of production.

Minimum Efficient Scale

The smallest amount of production a company can achieve while still taking full advantage of economies of scale in terms of lowering the average cost per unit.