The Long-Run and Short-Run Aggregate Supply Curves Reflect Fundamental Differences

question 37

Essay

The long-run and short-run aggregate supply curves reflect fundamental differences between long-run and short-run macroeconomic analysis.
a.Graphically illustrate the long-run and short-run aggregate supply curves. Be sure to label the axes.
b.What determines the level of output in the long run versus the short run?
c.How do prices behave differently in the long run and the short run?

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Definitions:

Profit-Maximizing

The manner in which a company ascertains the ideal pricing and production scale to ensure peak profit.

Firm

A business organization, such as a corporation or partnership, which sells goods or services in exchange for money.

AFC

Average Fixed Cost, the fixed costs of production divided by the quantity of output produced.

Variable Costs

Costs that change in proportion to the good or service that a business produces, such as materials and labor.