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04supp_sg

# 04supp_sg - Chapter 4 Supply Chapter 4 Supply CHAPTER...

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Chapter 4: Supply Chapter 4 Supply CHAPTER SUMMARY A small seller, which cannot affect the market price, maximizes profit by producing at a rate where its marginal cost equals the price. (For a small seller, the price equals marginal revenue.) In the short run, at least one input is fixed and therefore cannot be adjusted. The business breaks even when total revenue covers variable cost. In the long run, the business can adjust all inputs and leave or enter the industry. It breaks even when total revenue covers total cost. The supply curve shows the quantity supplied as a function of price, other things equal. The effect of a change in price is represented by a movement along the supply curve to a new quantity. Changes in other factors such as wages and the prices of other inputs are represented by shifts of the entire supply curve. Seller surplus is the difference between revenue from some production rate and the minimum amount necessary to induce the seller to produce that quantity. Elasticities of supply measure the responsiveness of supply to changes in underlying factors that affect supply. The Math Supplement to this chapter illustrates two things mathematically. First, it shows that the profit-maximizing (loss minimizing) production rate exists where marginal revenue equals marginal cost. Second, it shows that a change in any factor of supply other than the price of the item is represented by a shift of the entire market supply curve. KEY CONCEPTS short run average (unit) cost market supply curve long run marginal product seller surplus fixed cost marginal revenue elasticity of supply variable cost total revenue price elasticity of supply total cost sunk cost marginal cost individual supply curve © 2001, I.P.L. Png & C.W.J. Cheng 1

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Chapter 4: Supply GENERAL CHAPTER OBJECTIVES 1. Explain why short run costs vary with the production rate and what could cause a shift in short run cost curves. 2. Determine the profit-maximizing (loss-minimizing) production level in the short run. 3. Explain under what short-run conditions a business will remain in operation and when it is best to shut down. 4. Explain why the individual seller’s supply curve is that portion of its marginal cost curve above minimum average variable cost. 5. Explain why the demand for inputs is derived from the level of production. 6. Explain why costs vary with the production rate and what could cause a shift in cost curves. 7. Determine the profit-maximizing (loss-minimizing) production level in the long run and explain the breakeven condition in the long run. 8. Describe how the market supply curve is derived in the short run and the long run and their properties. 9. Describe seller surplus in words and determine it graphically. 10.
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04supp_sg - Chapter 4 Supply Chapter 4 Supply CHAPTER...

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