Chapter 5 - Perfectly competitive supply

Chapter 5 - Perfectly competitive supply - Perfectly...

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Perfectly competitive supply: cost side of the market – Principles of Economics (Ch.5) 23/11/10 The supply curve for a good or service is the quantity that sellers wish to sell at a price level along the curve . The prices depend on opportunity costs and the low-hanging fruit principles (employ first those which have the lowest opportunity costs) which is also a reason why the supply curve is upward sloping . Supply curve coincides/equals marginal costs Sum of individual supply curves (horizontal adding: consider different price regions for different supply curves) Change in supply: shift of the entire supply curve Change in the quantity supplied: movement along the curve Law of diminishing return: when some factors are hold fixed the amount of additional variable factors grows larger o Cost tend to rise when production increases (upward sloping) Factor of production: inputs used to produce goods and services (output) o Variable factors of production: can be altered in the short run o Fixed factors of production: cannot be altered in the short run Short run: period of time sufficiently short that some of the firms factors of production are fixed (upward slopping) Long run: period of time sufficiently long enough that all of the firms factors of production are variable o law of diminishing returns and upward sloping can be avoided (improvements in technology and other criteria which allow lower unit cost) Costs: different cost concepts: o Fixed costs: sum of all fixed costs/regardless of production actually takes place ( getting smaller on per unit base as production increases within the relevant range, economies of scale) o Variable costs: sum of all variable factors o Total costs: sum of all fixed and variable costs o Marginal costs: how total cost changes when output changes-change in total
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