You’re absolutely right-firms do experience increasing marginal returns for a period. This means that individual firms can observe decreasing marginal costs over a certain range of output. However, as additional variable resources (e.g., labor or materials) are added to fixed resources (such as facility size or equipment), diminishing marginal returns will eventually set in. This phenomenon of increasing marginal returns, followed by diminishing returns, is specific to individual firms. Moreover, since a firm's supply curve is defined as the portion of the marginal cost (MC) curve that lies above the average variable cost (AVC) curve, we can conclude that, even at the firm level, the marginal cost associated with the supply curve is ultimately increasing. On a broader scale, at the resource allocation or industry level, the law of increasing opportunity costs comes into play, which also implies increasing marginal costs. However, it’s important to note that this is more of a conceptual framework used to understand resource allocation dynamics.

The Long-Run Aggregate Supply (LRAS) curve is vertically sloped because, in the long run, changes in the price level (the independent variable) are fully offset by corresponding changes in production costs, such as wages. This adjustment ensures that the profitability of production remains unchanged despite fluctuations in the price level-unlike in the short run, where profitability may vary with price changes. Since production decisions are driven by changes in profitability, and profitability remains constant in the long run, the level of production does not change. As a result, the LRAS represents the economy's maximum sustainable output, unaffected by price level variations.

If the Federal Reserve chooses to monetize the debt, deficit financing may not necessarily lead to higher interest rates-provided the bond market does not perceive such monetization as inflationary. However, this video is designed as an introductory, college-level explanation, focusing on the core cause-and-effect relationships. To simplify our analysis, we apply the principle of ceteris paribus (all else held constant) when introducing changes-in this case, an increase in government deficits. This video assumes that fiscal actions are not accompanied by monetary policy adjustments. Therefore, under the assumption that monetary authorities remain neutral, we conclude that increases in budget deficits place upward pressure on interest rates.

@ thanks for elaboration, makes sense - just curious to know how this will work in the real world. Seems like we have something similar in the mkt thesedays and treasury auction interest rate / yield seem to be high for other reasons than just “ increase demand for loanable fund”. How applicable are these theories to the real world? And what other factors should we consider ?

disagree - i enjoy his teaching style. it's packed with great info

Noted!