The Cost of Production Regardless of the price that a firm can receive for its

The cost of production regardless of the price that a

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The Cost of Production Regardless of the price that a firm can receive for its product, revenue must exceed the cost of producing the output for the firm to make a profit. Thus supply decision is likely to change in response to change in cost of production Cost of production depends on available technology , prices and quantities of inputs 50
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Technology can have enormous positive impact on the cost of production over time. Eg. Modern biotechnological innovations like Genetically Modified (GM) crops have reduced production costs - Less pesticides are required With reduced cost of production, output supplied increases 51
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Cost of production is also affected by price of inputs: Eg. With increase in price of oil, airlines face higher fuel costs - Reduce/cancel the number of flights - Thus there is reduction in quantity supplied 52
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53 of 46 SUPPLY IN PRODUCT/OUTPUT MARKETS The Prices of Related Products An increase in price of wheat may cause farmers to shift to production of wheat from production of sugarcane Thus quantity of sugarcane supplied may reduce 53
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Summary: A firm’s decision about what quantity of output to supply depends on 1. The price of the product/service 2. The cost of producing the product, which in turn depends on - price of inputs - technologies that can be used to produce the product 3. The prices of related products 54
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SUPPLY IN PRODUCT/OUTPUT MARKETS SHIFT OF SUPPLY VERSUS MOVEMENT ALONG A SUPPLY CURVE movement along a supply curve The change in quantity supplied due to a change in price. shift of a supply curve The change that takes place in a supply curve corresponding to a new relationship between quantity supplied of a good and the price of that good. The shift is brought about by a change in the ceteris paribus conditions. 55
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Suppose a breakthrough biotech innovation is available that can produce disease and pest resistant variety of wheat Such technology would enable farmers to supply more output at each market price 56
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SUPPLY IN PRODUCT/OUTPUT MARKETS   Shift of Supply Schedule for wheat SCHEDULE S 0 SCHEDULE S 1 Price (Per unit) Quantity Supplied (units Per Year  Using Old Seed) Quantity Supplied (units Per Year  Using New Seed) 1.50 0 5,000 1.75 10,000 23,000 2.25 20,000 33,000 3.00 30,000 40,000 4.00 45,000 54,000 5.00 45,000 54,000 57
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SUPPLY IN PRODUCT/OUTPUT MARKETS Change in price of a good or service leads to Change in quantity supplied (movement along a supply curve). Change in technology, costs, price of inputs, price of other goods or services leads to Change in supply (shift of a supply curve). As with demand, it is important to distinguish: movements along supply curves (changes in quantity supplied) and shifts in supply curves (changes in supply): 58
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SUPPLY IN PRODUCT/OUTPUT MARKETS FROM INDIVIDUAL SUPPLY TO MARKET SUPPLY market supply The sum of quantities supplied each period by all producers of a single product.
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