The average total cost curve eventually slopes upwards because of ...

[yoooooman]

The average total cost curve eventually slopes upwards because of the
 
  A) law of diminishing returns.
  B) reductions in average fixed costs.
  C) increase in capital costs.
  D) decrease in labor costs.

Question 2

What happens if the economy is at its long-run equilibrium and aggregate demand increases?
 
  What will be an ideal response?

[maya.nigrin17@yahoo.com]

Answer to Question 1

A

Answer to Question 2

The increase in aggregate demand means that the AD curve shifts rightward. Initially short-run aggregate supply does not change, so the SAS curve remains stationary. As a result, the price level rises and real GDP increases. The economy is an above-full-employment equilibrium. Eventually, however, the tight labor market leads to a rise in the money wage rate. When the money wage rate rises, short-run aggregate supply decreases and the SAS curve shifts leftward. The price level rises and real GDP decreases. In the long run, the short-run aggregate supply decreases so that real GDP returns to potential level of GDP and the only effect is that the price level is permanently higher.

[yoooooman]

Excellent

[mcabuhat]

Gracias!