Final answer:
A positively sloped aggregate supply curve represents the rising costs associated with increased capacity utilization, where firms face higher marginal costs as production increases. It demonstrates the incentive for firms to produce more as prices rise due to fixed input costs, resulting in higher profits up to the potential GDP limit.
Step-by-step explanation:
A positively sloped aggregate supply curve reflects c. The rising costs associated with increased capacity utilization. As production increases, firms may experience an increase in the marginal costs of production due to factors like overtime pay, the costs of starting up more production lines, and the diminishing returns of adding more input to a fixed amount of capital. This relationship is captured by the upward-sloping short-run aggregate supply (SRAS) curve, which illustrates the positive relationship between the price level and the level of real GDP in the short run. The upward slope indicates that as the price level for outputs rises, with the price of inputs remaining fixed, firms have an incentive to produce more to earn higher profits.
At relatively low levels of output, the economy has ample slack, characterized by high unemployment and underused factories, which can respond dramatically to a relatively small increase in output prices. However, as output approaches potential GDP, the maximum that the economy can produce with full employment of workers and physical capital, the curve becomes steeper. In this range, increases in demand lead to higher prices rather than increased output.