Back
to top
Why, exactly, would forcing firms to cut costs increase aggregate supply?
Watch this threadPage 1 of 1
Go to first unread
Skip to page:
Brian Moser
Badges:
12
Rep:
?
You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#1
The unit 2 study guide I am reading says that forcing firms to cut costs would increase aggregate supply, but doesn't explain why. It may be really obvious, but can anyone please explain this to me?
Thanks
Thanks
0
reply
jennifer.tariah
Badges:
12
Rep:
?
You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#2
Report
#2
Would it mean cutting costs would mean they have more money to spend on training or CELL ? which would lead to AS shifting outwards?
0
reply
RowanL
Badges:
8
Rep:
?
You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#3
Report
#3
If firms cut costs then at each price level they are willing to supply more because they supply up to the point at which the marginal cost of producing is zero. This means that if firms cut costs it will lead to the AS shifting out.
0
reply
Liberalists
Badges:
0
Rep:
?
You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#4
Report
#4
(Original post by Brian Moser)
x
x
0
reply
ddrrzzeerr
Badges:
17
?
You'll earn badges for being active around the site. Rep gems come when your posts are rated by other community members.
#5
Report
#5
(Original post by Brian Moser)
The unit 2 study guide I am reading says that forcing firms to cut costs would increase aggregate supply, but doesn't explain why. It may be really obvious, but can anyone please explain this to me?
Thanks
The unit 2 study guide I am reading says that forcing firms to cut costs would increase aggregate supply, but doesn't explain why. It may be really obvious, but can anyone please explain this to me?
Thanks
Cost, in the context of production, is the quantity of inputs you need to produce a unit of output. Therefore a reduction cost is equivalent to saying you get more out for every unit you put in. If you assume thee economy has a fixed quantity of inputs eg labour and capital then lower costs equal more output (aggregate supply).
I don't like the wording of "forcing firms to lower costs". Under the assumption of profit maximisation, firms want as low costs as possible so they don't need to be forced. The question is how are you going to lower the cost to firms.
0
reply
X
Page 1 of 1
Go to first unread
Skip to page:
Quick Reply
