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

The financial gain achieved when the revenue earned from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Wage

Payment to a worker from an employer for labor or services, usually expressed as an hourly, daily, or piece rate.

Marginal Revenue

The change in total revenue from an additional unit sold.

Marginal Cost

The cost of producing one additional unit of a good or service, important in decision-making processes about production levels.