According to the profit effect,
A)Some costs do not rise when average prices rise.
B)The aggregate supply curve is vertical in the short run.
C)The aggregate supply curve has a negative slope.
D)All costs rise when average prices rise.

Question

Quizplus · Accepted Answer

According to the profit effect, some costs, such as fixed costs, do not rise when average prices rise. This results in an increase in the profits of firms, leading to an increase in the quantity of output supplied in the short run. Therefore, the short-run aggregate supply curve is upward sloping.

According to the Profit Effect