Why, exactly, would forcing firms to cut costs increase aggregate supply?

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Brian Moser
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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?

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jennifer.tariah
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Would it mean cutting costs would mean they have more money to spend on training or CELL ? which would lead to AS shifting outwards?
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RowanL
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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.
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Liberalists
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(Original post by Brian Moser)
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Cutting costs would mean sustaining the same level of output with less inputs (from factors of production). Shifting the supply curve to the left as it accounts for increased productivity (efficiency). Simple as that, don't make it difficult for yourself.
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ddrrzzeerr
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(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
For a single firm, lower costs means they want to supply more at any given price level, the supply curve in perfect competition is the mc curve. So if you aggregate all the supply functions of firms, if they on the whole have lower costs, they will produce more.

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.
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