Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. If productivity increased such that 3,000 units are now produced
With the quantity of inputs still equal to 60, then per-unit production costs would
A) decrease and aggregate supply would decrease.
B) decrease and aggregate supply would increase.
C) increase and aggregate supply would decrease.
D) remain unchanged and aggregate supply would remain unchanged.

Question

Quizplus · Accepted Answer

Per-unit production costs would decrease because the same amount of input is being used to produce more output, leading to greater efficiency and lower costs per unit of output. Aggregate supply would increase as well because there are now more units of output available in the economy.

Suppose That an Economy Produces 2,400 Units of Output, Employing