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ToshaCollins_BU204-16_Unit 6 Assignment

ToshaCollins_BU204-16_Unit 6 Assignment - Tosha Collins...

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Tosha Collins BU204-16 Unit 6 Assignment 5/30/10 1. I would explain the following: In the short-run, the firms have limitations to expansion so that only rising prices instill in firms to increase their production capacity to reap profits. There are capital constraints and because of that the short-run supply curve fluctuates with the price. A higher price forces employers to squeeze the maximum out of their work force. And a lower price means inefficiency and a lower productivity leading to low production because of the small profits. The nominal wage rates and employee expenses are sticky in the short-run so the short-run supply curve responds perfectly to changes in price. However, the long- run supply curve is reflective of the fact that all capacity constraints have now been overcome. In the short-run supply curve the input expenses are sticky. However, in the long-run, agreements and wages are negotiated over and over. This means that employee wages and other inputs are now flexible. This means that increase in aggregate prices affects the entire economy: the wage rates, the food prices, the automotive prices, etc. So this means that increase or decrease in aggregate prices means a revaluation of wage rates thus lowering or raising costs for businesses operating aligned with their revenues. That
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