ECN_203__5___Product_Market_Supply(sp08)

ECN_203__5___Product_Market_Supply(sp08) - Chapter 5...

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Chapter 5 – Product Market Supply Examine major determinants of product supply–price of the good, prices of inputs into the production, technology, environmental changes. Distinguish between individual and market supply, and explore more into the individual producer’s production decision.
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Why the Product Supply Line Slopes Up? Two concepts-- (1) diminishing marginal product (MP) of labor and (2) marginal cost (MC). Diminishing MP -- eventually less and less output (Q) produced from each successive unit of labor. MC -- the change in total cost of production due to a change in output; MC= TC/ Q.
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Why the Product Supply Line Slopes Up? Workers Wage Per Day MP of Labor Marginal Cost/Unit 1 $20 25 $.80 ($20/25) 2 $20 100 $.20 3 $20 200 $.10 4 $20 180 $.11 5 $20 160 $.13 6 $20 140 $.14 7 $20 120 $.17 8 $20 110 $.18
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Why the Product Supply Line Slopes Up? As MP rises, MC falls. As MP falls, MC rises. When MP reaches highest points, MC at its minimum. Firm’s supply line is the upward MC
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This note was uploaded on 04/18/2008 for the course ECN 203 taught by Professor Evensky during the Spring '07 term at Syracuse.

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ECN_203__5___Product_Market_Supply(sp08) - Chapter 5...

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