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.

Question

Quizplus · Accepted Answer

The profit effect is temporary in the short run, as producers will increase output in response to higher prices to maximize profits. However, in the long run, the cost effect dominates and the profit effect is canceled out, causing the aggregate supply curve to be upward-sloping.

For the Aggregate Supply Curve,the Profit Effect