In the Long Run, How Will an Increase in Aggregate

question 66

Multiple Choice

In the long run, how will an increase in aggregate demand affect price and output?  

• A) The price level will decrease, and the output level will decrease. 
• B) The price level will increase, and the output level will increase. 
• C) The price level will increase, and the output level will decrease. 
• D) The price level will increase, and the output level will remain the same.

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Definitions:

Average Variable Cost

The total variable cost per unit of output, calculated by dividing total variable costs by the quantity of output.

MR = MC

Marginal Revenue equals Marginal Cost; a condition used to determine the profit-maximizing level of output for a firm.

Profit-maximizing Quantity

The level of output at which a business realizes the greatest profit, where marginal cost equals marginal revenue.

Economic Loss

Occurs when the total cost of producing a good or service exceeds the revenue generated from its sale, leading to negative profitability.