Answer to Question #222826 in Macroeconomics for Cebo

Question

1. Explain the three possible profit maximizing positions of perfectly competitive firms in the short-run. 
2. Distinguish between the short-run aggregate supply curve and the long-run aggregate supply curve

Answer 1

1)

In short run, a firm maximizes its profit by choosing an output at which marginal cost is equal to marginal revenue.

In short run, a firm maximizes its profit when price is greater than average total cost, the firm is making a profit.

In short run, a firm maximizes its profit when price is equal to marginal cost.

2)

The long-run aggregate supply curve is a vertical line at the potential level of output while the short-run aggregate supply curve is an upward-sloping curve.