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Macroeconomic Aggregates

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1) Explain the difference between the short run and the long run as it relates to the firm's production function. Why is this distinction important to a firm's manager?

2) Explain why a firm maximizes its profits by producing the level of output at which marginal revenue equals marginal costs.

3) Explain how labor resistance and political and legislative influences reduce the ability of firms to minimize their costs of production. What do the two have in common in this regard?

4) What are the two primary factors that influence a firm manager's choice between a labor-intensive and a capital-intensive method of production? How does each factor influence the manager's choice?

5) Summarize the relationship between elasticity, price changes, and changes in total revenue.

6) Distinguish between "a change in demand" and "a change in quantity demanded." What are the causes of each type of change and how do we illustrate them graphically?

7) List the factors that influence supply. How does a change in each of factors you have listed affect the supply curve?

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Solution Summary

This is foundational macroeconomics. The most basic terms are defined and examples of each are given. The distinct measures of demand and supply are the focus. This is strictly for beginners.

See Also This Related BrainMass Solution


Aggregate supply reflects billions of production decisions made by:

consumers when they decide which products to purchase.
households and firms, because they each demand goods and services.
the largest firms and largest households.
households, which demand resources, and firms, which supply resources.
resource suppliers and firms.

In the long run, equilibrium output:

occurs when the economy has high levels of unemployment.
equals aggregate supply, and the equilibrium price depends on the aggregate demand curve.
is when actual aggregate expenditures equal real GDP.
occurs when inventories of goods and services are increasing.
occurs when wages are sticky.

If the MPC < 1 and a household's disposable income increases by $2,000, the household's consumption will:

increase by less than $2,000.
increase by $2,000.
decrease if the family was wealthy before the income change.
remain the same unless the change in income significantly affects the household's wealth.
remain the same.

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