Question

For the aggregate supply curve, the profit effect:

A. Provides an incentive for producers to decrease output when prices rise.
B. Dominates in the long run and causes the curve to be upward-sloping.
C. Along with the cost effect causes the curve to be downward-sloping in the long run.
D. Is temporary in the short run, while in the long run it is canceled out because the cost effect dominates.

Answer 1

Answer:

D. is temporary in the short run, while in the long run, it is canceled out because the cost effect dominates.

Explanation:

Supply curve is the total output quantity that will be produced and sold by a firm.

In the short run, prices of produce are fixed. There is a positive relationship between price and Gross domestic product , which means that producers or suppliers are able to make profit due to price increase for outputs and price decrease for inputs.

In the long run, the profit is canceled out due to cost effect, which means that there is an increase in price input compared to output.