If there was no profit effect, but there was a misperception effect in the short run, then:
A)both the short-run and the long-run aggregate supply curve would be upward sloping.
B)the short-run aggregate supply curve would be upward sloping and the long-run aggregate supply curve would be vertical.
C)the short-run aggregate supply curve would be vertical and the long-run aggregate supply curve would be upward sloping.
D)both the short-run and the long-run aggregate supply curve would be vertical.
E)the short-run aggregate supply curve would be horizontal and the long-run aggregate supply curve would be vertical.

Question

Quizplus · Accepted Answer

In this scenario, there is a misperception effect which means that in the short run, firms may mistakenly believe that changes in the overall price level are specific to their industry and are not reflective of the broader economy. This would lead to an upward sloping short-run aggregate supply curve. However, in the long run, firms would adjust their beliefs and expectations to match the actual price level in the economy, leading to a vertical long-run aggregate supply curve. The absence of a profit effect would not change this relationship.

If There Was No Profit Effect, but There Was a Misperception