Why is the AS curve is flat at very low levels of real outpu

Why is the AS curve is flat at very low levels of real output and becomes very steep at higher levels of real output?

Solution

The Aggregate Supply (AS) curve is derived using a nominal wage and in the short-run, it is fixed. An increase in price indicates higher profits which means expansion of output. So it is upward sloping. At low levels of demand, process do not make use of their fixed capital equipment. The average price level does not have to rise much in order to justify increased production. Hence in this case, the AS remains flat.

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