Analyzing a Firm's Supply Response to a Price Change
A firm operates in a market where it is a price-taker, meaning it accepts the market price for its product. This firm's marginal cost of production—the cost of producing one additional unit—increases as it produces more. If the market price for the firm's product increases, explain what will happen to the firm's profit-maximizing quantity of output and why, in terms of the relationship between price and marginal cost.
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Social Science
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Economy
Economics
CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
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Deriving a Firm's Supply Function from a Smoothly Increasing Marginal Cost Curve Using Calculus
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A firm operates in a market where it must accept the going price of $12 per unit for its product. The firm's marginal cost (MC) of production, which represents the cost to produce one additional unit, changes with the quantity (Q) it produces. The data is as follows:
- At Q=50, MC = $10
- At Q=60, MC = $11
- At Q=70, MC = $12
- At Q=80, MC = $13
To maximize its profit, what quantity should this firm choose to produce?
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A firm that has the power to influence the market price for its product determines its supply schedule by finding the quantity it wishes to sell at various prices along its marginal cost curve.
Analyzing a Firm's Supply Response to a Price Change
Analyzing a Firm's Supply Response to a Price Change
Evaluating the Relationship Between Marginal Cost and Supply
A firm that accepts the market price for its product determines its profit-maximizing output by producing the quantity where the market price equals the cost of producing one more unit (marginal cost). The firm's marginal cost varies with its production level. Given the following specific points on the firm's marginal cost schedule, match each market price to the corresponding quantity the firm will choose to supply.
Marginal Cost Schedule Points:
- The marginal cost of producing the 80th unit is $15.
- The marginal cost of producing the 120th unit is $20.
- The marginal cost of producing the 150th unit is $25.
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Because a profit-maximizing firm that accepts the market price will produce at a quantity where the price equals its marginal cost, the firm's ___________ curve effectively functions as its supply curve.
A profit-maximizing firm, which accepts the market price for its goods, is operating in equilibrium. The market price for its product then permanently increases. Arrange the sequence of logical considerations and actions the firm undertakes to adjust its supply.
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Supply Curve (Firm vs. Market)