Explain the rationale for the shape of the short-run aggregate supply curve in the immediate short run.
What will be an ideal response?
In the immediate short run, the aggregate supply curve is horizontal at a particular price level. In the immediate short run, input prices for firms are fixed because of labor and other resource contracts that fix the price of inputs. Also, output prices are fixed because of supplier contracts with buyers to supply as much of the product that a buyer wants. The horizontal shape means that the total amount of output supplied depends on the volume of spending that results in a particular price level.
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For movements along the short-run aggregate supply curve
A) the money wage rate is constant. B) the real wage rate changes. C) potential GDP remains constant. D) All of the above are correct.
If the price level rises faster than the money wage rate, the real wage rate falls
Indicate whether the statement is true or false
Which of the following are NOT characteristics of a competitive market?
A) There is freedom of entry and exit. B) There are zero transaction costs. C) There are only one or two sellers. D) Buyers and sellers have complete information.
To maximize profits, the monopolist should produce at which
A) MR = MC. B) MC intersects the demand curve. C) total revenue is maximized. D) total costs are minimized.