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ECN 203 (5), Product Market Supply - Chapter 5 Product...

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Chapter 5 – Product Market Supply This chapter examines the major causes of how much firms will supply of a specific good (under perfect competition), given the price of the good, the price of inputs (e.g. energy, and other causes that we will cover. It also explains how we distinguish between individual and market supply, and goes further into the individual producer’s production decision.
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Price and Quantity Supplied: Direction of Change Recall – the good’s own price (P) is a cause of quantity supplied of that good (Q S ). P Q S . We’ll examine why in more detail.
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Marginal Cost Marginal Cost (MC) – the change in total cost that a firm experiences as a result of increasing the quantity or output of the good it’s producing (Q). Formula: MC = (Total Cost)/ Q .
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Properties of Marginal Cost (MC) MC > 0. Q (Total Cost) Comes from production function (relationship how inputs combine to produce output).
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The Law of Diminishing Returns and Marginal Cost The Law of Diminishing Returns (LDR) necessarily implies increasing Marginal Cost .
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