If profit per unit equals (price - cost per unit) and costs are temporarily fixed, then the aggregate supply curve will have
A)a basic "U" shape.
B)a negative slope.
C)a positive slope.
D)All of the above could be correct.

Question

Quizplus · Accepted Answer

The profit per unit equals (price - cost per unit), so if the costs are temporarily fixed, then an increase in price will result in an increase in profit per unit, and thus an increase in supply. Therefore, the curve will have a positive slope. Option A is incorrect because a basic "U" shape would suggest that as prices increase, supply would first increase before decreasing. Option B is incorrect because a negative slope would suggest that as prices increase, supply would decrease, which is not the case with a fixed cost situation. Option D is incorrect because all options cannot be correct; only one option is correct in this scenario.

If Profit Per Unit Equals (Price - Cost Per Unit)