Which of the following is true in the short run?
A) The aggregate supply curve is horizontal.
B) The aggregate supply curve is vertical.
C) Per-unit costs do not increase as much as output prices when the price level rises.
D) An increase in price per unit results in a decrease in profit per unit for firms.
E) Firms' total costs of production decrease as output expands beyond the potential level.

Question

Quizplus · Accepted Answer

In the short run, per-unit costs do not increase as much as output prices when the price level rises due to sticky wages and prices, and firms may not immediately adjust input prices to reflect changes in output prices. This leads to a situation where profit per unit increases in the short run as prices rise, allowing firms to increase output levels and profits without incurring significant additional costs. However, in the long run, wages and prices will eventually become flexible and adjust to changes in the price level, causing the aggregate supply curve to become vertical.

Which of the Following Is True in the Short Run