These firms are able to produce additional units of output at the same marginal cost as previous units, since most firms aren't producing at maximum capacity most of the time. A final attribute, noted in our discussion of advertising, is that most firms depend on repeat customers for most of their sales. Retail outlets attract customers by offering the range of goods of a particular quality that their regular customers expect. They also charge prices that their regular customers expect. When these three attributes are brought together, an interesting result emerges.
Most retail firms change prices very little in response to changes in demand.
So long as input prices remain constant, marginal cost remains constant, and firms tend to maintain constant prices for their products. Firms produce and sell more goods when AD rises and fewer goods when AD falls. An increase in aggregate demand causes output to rise. The AD curve shifts to the right, and producers in most markets in the economy experience an increase in demand for their products. They respond by purchasing more inputs and producing more goods and services.