The short- run aggregate supply curve is upward sloping because
A) capital is scarce.
B) potential GDP is less than real GDP when the price level falls.
C) firms need to receive higher prices to cover the higher costs of producing increasing levels of output.
D) technology is scarce.

Question

Quizplus · Accepted Answer

The short-run aggregate supply curve is upward sloping because firms need to receive higher prices to cover the higher costs of producing increasing levels of output. As firms increase production in the short run, they will eventually encounter diminishing returns, which means that the cost of producing additional units of output will be higher. Therefore, firms will require higher prices to justify increased production.

The Short- Run Aggregate Supply Curve Is Upward Sloping Because