The long run supply curve is a curve that reflects the relationship between the overall price level in a country and the real output that firms want and plan to realize in the long term.
Explanation:
In the long run, the prices of the end products sold as well as the prices of the factors of production purchased by entrepreneurs are equalized. All this deprives them of the opportunity to make additional profit as a result of price changes.
As a result, the long-term aggregate supply curve will not depend on the price level and will look like a vertical straight line, reflecting the fact that higher prices for final goods will lead to higher factor prices. A fall in the prices of final goods will lead to a fall in the level of factor prices, but will have no effect on output.
However, this does not mean that the long-term aggregate supply curve is in the same place and not moving. It moves on the basis of the development of production potential, productivity and technology, i.e. those factors of production that have a direct impact on the movement of GDP levels. Therefore, the long-run curve of aggregate supply will naturally coincide with the natural level of GDP.
A long-term production period is a period of time during which the number of all factors of production used in the production process changes.
In the long run, the firm has no permanent factors of production; all factors become variables. Therefore, output y is presented as a function of several variables: y= f(x1,…, xn). Sometimes in economic analysis it is convenient to introduce an additional assumption that the firm uses only two factors of production, both of which are variables, rather than n.
Thus, there are no permanent factors of production in the long-term period; all factors of production are variable.