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MADE BY:
RISHABH GUPTA
XII ‘B’
ROLL NO. 36
 Production means transformation of inputs into outputs.
 Supply of product refers to the quantity supplied at the
given...
 It states the maximum amount of output that can be
produced with any given quantities of various inputs.
 Particular pe...
 The functional relationship under given
technology between input and output, per
unit of time.
Q = f ( L, K)
Output
Inpu...
Types
Short –Run
(Inputs kept constant
One input (Labour) is varied)
Long – Run
(Varying all inputs)
Law of variable
propo...
Basis Short Run Long Run
Meaning
Short run refers to the period in
which only variable factors are
changed
Long run refers...
Variable factors versus
fixed factors
Variable factors: are factors of which
the employment varies with output.
Fixed fact...
Three variables are defined to measure
the output:
____________________: is the whole amount of output
produced by all the...
Units of
Labour
L
Total
Product
(Quintals)
Q
Marginal
Product
(Quintals)
Average
Product
(Quintals)
1 80 80 80
2 170 90 85...
 One – factor varying, quantities of other factor as fixed
 Law of variable proportion:
It’s the study of the effect on ...
The slope of
TP curve is
MP.
The slope of
the line joining
the origin and
a point on TP
is AP.
Notice the
points where
MP ...
Stage 1.
 TP increases at an increasing rate upto a point.
 MP of variable factor is rising
 Point F (Point of Inflecti...
Stage 2.
 TP increases at a diminishing rate, reaches its maximum
point
 MP, AP are diminishing but positive
 MP become...
 Stage 3 – No
MP of variable factor is negative
 Stage 1 – No
MP of fixed factor is negative
Full utilisation is not the...
 Increasing Returns
 Quantity of fixed factor is abundant than variable factor
 Fixed factor are indivisible
 With add...
 Negative Returns
Number of variable factor become too excessive to the
fixed factor Marginal Product of variable factor ...
 As long as MPP increases,
TPP increases at an
increasing rate.
 When MPP decreases, TPP
increases diminishing rate.
 W...
 Cost is the value of the inputs used to
produce its output; e.g. the firm hires labor,
and the cost is the wage rate tha...
For factors hired or employed
by a firm:
The costs are (the value of) the highest-valued alternative use
of the money spen...
For factors owned by a
firm:
The costs of using these factors are (the value of) the highest-
valued alternative uses of t...
 Cost function : Functional relationship
between output and cost.
C=f(q)
Where f=functional relationship
c= cost of produ...
Total cost
 is the whole amount of payments to all
factors used in producing a given
amount of output (Q), composed of:
...
TVC = w x L• total variable
cost:
Formula:
TC = TFC +TVC
Total Cost:
Assume two factors only:
 Capital (fixed factor) and...
Basis TVC TFC
Meaning Vary with the level of output Do not vary with the level of output
Time period Can be changed in sho...
 TFC is horizontal to x axis.
 TC and TVC are S shaped (they
rise initially at a decreasing rate,
then at a constant rat...
Average cost / Average total cost
(ATC)
 is the cost per unit of output,
composed of :
•average fixed cost (AFC): the
fix...
Formula:
AVCAFC
Q
TVCTFC
Q
TC
ATC 


Average Total Cost:
Q
TFC
AFC average fixed cost:
AP
w
L
Q
w
L
Q
L
Lw
Q
Lw
Q
TV...
ATC curve and AVC curve will come
closer and closer as the amount of output
increases (∵ATC = AFC + AVC and AFC
drops cont...
The turning point of ATC curve (b) occurs at a larger
output than the turning point of AVC curve (a).
(b)(a)
∵ At (a), the...
Marginal Cost
is the change in total cost for producing an
additional unit of output, composed of :
• marginal fixed cost...
Formula:
0



Q
TFC
MFCmarginal fixed cost:
MVCMFC
Q
TVCTFC
Q
TC
MC 






Marginal cost:
marginal variable ...
MC curve passes through the minimum points
of AVC curve and ATC curve.
MC or MVC
curve is
U-shaped
As TFC is a constant, M...
 Revenue refers to the amount received by a
firm from the sale of a given quantity of
commodity in the market.
 Total Revenue (TR)
It refers to total receipts from sale of a given
quantity of a commodity.
TR = Quantity x Price.
 Av...
 When a firm has no control over price, it can sell any amount at a
given price. Accordingly, firms demand curve (or AR c...
 When marginal revenue curve declines till point M
in part B, total revenue is increasing at diminishing
rate as shown by...
In microeconomics, break-even is said to
occur when:
TR = TC
Or, or P = AC
A firm is just covering all its costs.
Break-ev...
Shut-down point occurs when a firm is just
covering its variable costs only. Or, it is a
situation when:
TR = TVC or or AR...
 Having understood the behavior of revenue
and costs for a firm, it is time now to
understand how a producer strikes his
...
 Under perfect
competition, a firm is in
equilibrium in short-run
when following two
conditions are fulfilled.
1) MR = MC...
 Both conditions are needed for producer’s
equilibrium
I. MC=MR: we know, MR is the addition to TR from sale of one
more ...
 Individual supply refers to quantity of a
commodity that an individual firm is willing
and able to offer for sale at a g...
 The analysis of the supply of produced goods
has two parts:
– An analysis of the supply of the factors of
production to ...
 There is a direct relationship between price
and quantity supplied.
 Quantity supplied rises as price rises, other
thin...
 Law of Supply
 As the price of a product rises, producers will be
willing to supply more.
 The height of the supply cu...
 The law of supply is accounted for by two
factors:
– When prices rise, firms substitute
production of one good for anoth...
 The supply curve is the graphic
representation of the law of supply.
 The supply curve slopes upward to the right.
 Th...
S
A
Quantity supplied (per unit of time)
0
Price(perunit)
PA
QA
 Supply refers to a schedule of quantities a
seller is willing to sell per unit of time at
various prices, other things c...
 Quantity supplied refers to a specific
amount that will be supplied at a specific
price.
 Changes in price causes changes in quantity
supplied represented by a movement along a
supply curve.
 A movement along a supply curve – the
graphic representation of the effect of a
change in price on the quantity supplied.
 If the amount supplied is affected by
anything other than a change in price,
there will be a shift in supply.
 Shift in supply – the graphic
representation of the effect of a
change in a factor other than price on
supply.
Change in quantity
supplied (a movement
along the curve)
Price(perunit)
Quantity supplied (per unit of time)
S0
$15
A
1,25...
Price(perunit)
Quantity supplied (per unit of time)
S0
Shift in Supply
(a shift of the curve)
S1
$15 A B
1,250 1,500
 Other factors besides price affect how much
will be supplied:
 Prices of inputs used in the production of a good.
 Tec...
Prices of Related
Goods and Services
Number
Of
Producers
Expectations
Of
Producers
Technology
And
Productivity
Resource
Pr...
 When costs go up, profits go down, so that
the incentive to supply also goes down.
 Advances in technology reduce the number
of inputs needed to produce a given supply
of goods.
 Costs go down, profits g...
 If suppliers expect prices to rise in the
future, they may store today's supply to reap
higher profits later.
 As more people decide to supply a good the
market supply increases (Rightward Shift).
 Market supply refers to quantity of a
commodity that all the firms are willing and
able to offer for sale at a given pri...
Quantities
Supplied
A
B
C
D
E
F
G
H
I
(1)
Price
(per DVD)
(2)
Ann's
Supply
(5)
Marke
tSupply
(4)
Charlie's
Supply
0.00
0.5...
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
PriceperDVD
Charlie Barry Ann
Quantity of DVDs supplied (per week)
Rs. 4.00
3.50
3.00
...
 The opportunity cost of producing and selling
any good is the forgone opportunity to
produce another good.
 If the pric...
 When taxes go up, costs go up, and profits go
down, leading suppliers to reduce output.
 When government subsidies go u...
 Measures the responsiveness of supply due
to a change in price.
D E F : - THE RATIO BETWEEN % CHANGE
IN QUANTITY SUPPLIE...
Percentage Change in Quantity Supplied
Percentage Change in Price
PES =
Remember:
Es = coefficient of price elasticity
QS ...
•PEs > 1 supply is elastic
•PEs < 1 supply is inelastic
•PEs = 1 Unitary Elastic
•PEs= ∞ Totally Elastic
•PEs= 0 Totally I...
PRICE
P1
P2
0
Q1 Q2
S
QUANTITY
PRICE
P1
P2
0
Q1 Q2
S
QUANTITY
PRICE
P1
P2
0
Q1 Q2
S
QUANTITY
PRICE
P1
0
S
QUANTITY
PRICE
P1
P2
0
S
QUANTITY
 Time
 Production capacity
 Producer or chief
 Stored products
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
Producer behaviour and supply
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Producer behaviour and supply

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ppt for class XII on producer behaviour and supply covering short run

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Producer behaviour and supply

  1. 1. MADE BY: RISHABH GUPTA XII ‘B’ ROLL NO. 36
  2. 2.  Production means transformation of inputs into outputs.  Supply of product refers to the quantity supplied at the given price.  Which depends upon  Relationship between input and output  Prices of inputs  Managerial efficiency
  3. 3.  It states the maximum amount of output that can be produced with any given quantities of various inputs.  Particular period of time  Flow concept : Flow of inputs leads to flow of output
  4. 4.  The functional relationship under given technology between input and output, per unit of time. Q = f ( L, K) Output Inputs
  5. 5. Types Short –Run (Inputs kept constant One input (Labour) is varied) Long – Run (Varying all inputs) Law of variable proportion Law of returns to scale
  6. 6. Basis Short Run Long Run Meaning Short run refers to the period in which only variable factors are changed Long run refers to the period in which all factors can be changed. Price Determination Demand is more active Both demand & supply than supply. play an important role. Classification Factors are classified as fixed & All factors are variable. variable.
  7. 7. Variable factors versus fixed factors Variable factors: are factors of which the employment varies with output. Fixed factors: are factors of which the employment does not vary with output.
  8. 8. Three variables are defined to measure the output: ____________________: is the whole amount of output produced by all the factors employed. Total product (TP) ____________________: is the output per unit of the variable factor employed. ____________________: the change in output resulting from employing an additional unit of the variable factor. Average product (AP) Marginal product (MP) TP = Q L Q L TP AP  L TP MP   
  9. 9. Units of Labour L Total Product (Quintals) Q Marginal Product (Quintals) Average Product (Quintals) 1 80 80 80 2 170 90 85 3 270 100 90 4 368 98 92 5 430 62 86 6 480 50 80 7 504 24 72 8 504 0 63 9 495 -9 55 10 480 -15 48 IR DR Negative
  10. 10.  One – factor varying, quantities of other factor as fixed  Law of variable proportion: It’s the study of the effect on output of variations in factor proportion.  As we increase quantity of only one input keeping other inputs fixed, total product initially increases at an increasing rate, then at a decreasing rate and finally at a negative rate.  It’s a new name for Law of Diminishing returns  The state of technology is assumed to be given / unchanged  Some inputs whose quantities is fixed  Measured in physical terms.
  11. 11. The slope of TP curve is MP. The slope of the line joining the origin and a point on TP is AP. Notice the points where MP = maxi.; MP=AP & MP = 0. F H D S Stage 1 Stage 3Stage 2
  12. 12. Stage 1.  TP increases at an increasing rate upto a point.  MP of variable factor is rising  Point F (Point of Inflection), TP curve rises but its slopes decline – TP is increasing at a diminishing rate. MP starts falling but its positive.  AP reaches its highest point  MP of variable factor rises and then falls  MP of fixed factor is negative  Quantity of fixed factor is too much to the variable factor
  13. 13. Stage 2.  TP increases at a diminishing rate, reaches its maximum point  MP, AP are diminishing but positive  MP becomes Zero Stage 3.  TP slopes downwards  MP of variable factor is Negative
  14. 14.  Stage 3 – No MP of variable factor is negative  Stage 1 – No MP of fixed factor is negative Full utilisation is not there Stages of Economic absurdity / Economic non-sense / Non- economic regions  Stage 2 – Yes MP and AP are positive but diminishing
  15. 15.  Increasing Returns  Quantity of fixed factor is abundant than variable factor  Fixed factor are indivisible  With addition of variable factor , fixed factor is more effectively and intensively utilised.  More units of variable factor are employed , the efficiency of variable factor increases – “specialisation of labour”.  Diminishing Returns  The maximum point has reached.  The amount of the variable factor is sufficient to ensure the efficient utilisation of fixed factor.  The contribution to the production made by the variable factor after a point become less as the additional units of the variable factor have less of fixed factor.
  16. 16.  Negative Returns Number of variable factor become too excessive to the fixed factor Marginal Product of variable factor is negative.  Diminishing returns occur because the factors of production are Imperfect substitutes for one another. There is a limit to which one factor of production can be substituted for another. Elasticity of substitution between factors is not infinite.
  17. 17.  As long as MPP increases, TPP increases at an increasing rate.  When MPP decreases, TPP increases diminishing rate.  When MPP is Zero, TPP is maximum.  When MPP is negative, TPP starts decreasing.
  18. 18.  Cost is the value of the inputs used to produce its output; e.g. the firm hires labor, and the cost is the wage rate that must be paid for the labor services
  19. 19. For factors hired or employed by a firm: The costs are (the value of) the highest-valued alternative use of the money spent in hiring them. They are called explicit costs , as they involve a transfer of money.
  20. 20. For factors owned by a firm: The costs of using these factors are (the value of) the highest- valued alternative uses of the factors. They are called implicit costs or imputed costs , as they do not involve a transfer of money.
  21. 21.  Cost function : Functional relationship between output and cost. C=f(q) Where f=functional relationship c= cost of production Output = ???
  22. 22. Total cost  is the whole amount of payments to all factors used in producing a given amount of output (Q), composed of:  Total fixed cost (TFC): is the whole amount of payments to fixed factors.  Total variable cost (TVC): is the whole amount of payments to variable factors.
  23. 23. TVC = w x L• total variable cost: Formula: TC = TFC +TVC Total Cost: Assume two factors only:  Capital (fixed factor) and labour (variable factor)  L units of labour are employed at a wage rate of w. a constant independent of output • total fixed cost:
  24. 24. Basis TVC TFC Meaning Vary with the level of output Do not vary with the level of output Time period Can be changed in short period Remain fixed in short period Cost at zero output Zero Can never be zero Factors of production Cost incurred on all variable factors Cost incurred on fixed factors of production Shape of the cost curve Upward sloping Parallel to x axis
  25. 25.  TFC is horizontal to x axis.  TC and TVC are S shaped (they rise initially at a decreasing rate, then at a constant rate & finally at an increasing rate) due to law of variable proportions.  At zero level of output TC is equal to TFC.  TC and TVC curves parallel to each other.
  26. 26. Average cost / Average total cost (ATC)  is the cost per unit of output, composed of : •average fixed cost (AFC): the fixed cost per unit of output. •average variable cost (AVC): the variable cost per unit of output.
  27. 27. Formula: AVCAFC Q TVCTFC Q TC ATC    Average Total Cost: Q TFC AFC average fixed cost: AP w L Q w L Q L Lw Q Lw Q TVC AVC      average variable cost:
  28. 28. ATC curve and AVC curve will come closer and closer as the amount of output increases (∵ATC = AFC + AVC and AFC drops continuously). AVC curve is U- shaped. (∵ AVC = w/AP and AP is inverted-U shaped.) AFC curve drops continuously. (∵AFC = TFC/Q) Features:
  29. 29. The turning point of ATC curve (b) occurs at a larger output than the turning point of AVC curve (a). (b)(a) ∵ At (a), the fall in AFC is > the rise in AVC initially but at (b), the fall in AFC is < the rise in AVC eventually
  30. 30. Marginal Cost is the change in total cost for producing an additional unit of output, composed of : • marginal fixed cost (MFC): is the change in fixed cost for producing an additional unit of output • marginal variable cost (MVC): is the change in variable cost for producing an additional unit of output.
  31. 31. Formula: 0    Q TFC MFCmarginal fixed cost: MVCMFC Q TVCTFC Q TC MC        Marginal cost: marginal variable cost: MP w L Q w L Q L Lw Q Lw Q TVC MVC               
  32. 32. MC curve passes through the minimum points of AVC curve and ATC curve. MC or MVC curve is U-shaped As TFC is a constant, MFC = 0. So MC = MVC. MC = MVC = w/MP. As MP curve is inverted-U shaped, MC or MVC curve is U-shaped.
  33. 33.  Revenue refers to the amount received by a firm from the sale of a given quantity of commodity in the market.
  34. 34.  Total Revenue (TR) It refers to total receipts from sale of a given quantity of a commodity. TR = Quantity x Price.  Average Revenue (AR) It refers to revenue per unit of output sold. AR = Total Revenue / Quantity.  Marginal Revenue (MR) It refers to the additional revenue generated from the sale of an additional unit of output. MR = change in TR /change in no. of units.
  35. 35.  When a firm has no control over price, it can sell any amount at a given price. Accordingly, firms demand curve (or AR curve) is a horizontal straight line as in.  When a firm has partial or full control over price, it can sell more of a product only by lowering its price. Accordingly, its demand curve (or AR curve) slopes downward, showing a negative relationship between price and output as in.
  36. 36.  When marginal revenue curve declines till point M in part B, total revenue is increasing at diminishing rate as shown by the segment O to B in part A.  When marginal revenue becomes zero at point M in part B, total revenue is at its maximum as shown by point B in part A.  When marginal revenue falls, the average revenue also falls but lies above the marginal revenue curve. Implying that in a situation of falling price, MR falls even faster.  After point M, marginal revenue becomes negative. Now total revenue starts diminishing.  A situation of zero AR obviously implies a situation of zero TR. (Zero price situation is not a general phenomenon, but, of course has examples as in government or charitable hospitals where medicines are given to the patients at zero price.) Note Carefully Marginal revenue can be positive, zero or negative but average revenue (or price) cannot be negative
  37. 37. In microeconomics, break-even is said to occur when: TR = TC Or, or P = AC A firm is just covering all its costs. Break-even is struck at point Q where AR (= Price) = AC = LQ = OP. A firm is just covering its costs as price (= OP) happens to be equal to AC (average cost) = LQ. Equilibrium is at point Q. It is to be carefully noted that the break- even point Q also happens to be the point of firms equilibrium where both the conditions of equilibrium are satisfied, viz (i) MC = MR, and (ii) (ii) MC is rising.
  38. 38. Shut-down point occurs when a firm is just covering its variable costs only. Or, it is a situation when: TR = TVC or or AR = AVC Here, the firm is incurring loss of fixed cost. Does it mean that the firm will suspend production of the commodity? Not necessarily. It may continue to produce because the loss of fixed cost is to be incurred even when output is suspended. Shut-down is struck at point Q where AR (Price) = AVC = LQ = OP. A firm is operating with a price just covering its AVC. Thus, price (or average revenue = OP) = average variable cost (= LQ). Note that shut-down point Q also happens to be a point of equilibrium where both the conditions of equilibrium are satisfied, viz. (i) MR = MC, and (ii) (ii) MC is rising.
  39. 39.  Having understood the behavior of revenue and costs for a firm, it is time now to understand how a producer strikes his equilibrium. As a producer, you will always like to maximize the difference between your total revenue (TR) and total cost (TC), so that your profit is maximized.  We will be studying how a producer attains equilibrium through MR-MC Approach.
  40. 40.  Under perfect competition, a firm is in equilibrium in short-run when following two conditions are fulfilled. 1) MR = MC 2) MC cuts MR from below or MC is rising at the point of equilibrium. Producer’s equilibrium is determined at OQ level of output corresponding to point E as at this point: (i) MC=MR; and (ii) MC is greater than MR after MC=MR level of output.
  41. 41.  Both conditions are needed for producer’s equilibrium I. MC=MR: we know, MR is the addition to TR from sale of one more unit of output and MC is the addition to TC for increasing production by one unit. Every producer aims to maximize his profits. For this, a firm compares its MR with its MC. Producer is not in equilibrium when MC<MR as it is possible to add more profits and also not when MC>MR as benefit is less than cost. It means firm will be at equilibrium when MC=MR. II. MC is greater than MR after MR=MC output level: MC=MR is a necessary condition but not sufficient enough. It is because MR=MC may occur at more than one level of output. But only that output level is the equilibrium output when MC becomes greater than MR after the equilibrium. It is because if MC is greater than MR, then producing beyond MC=MR output will reduce profits. But if MC is less than MR beyond MC=MR output, it is possible to add to profits by producing more.
  42. 42.  Individual supply refers to quantity of a commodity that an individual firm is willing and able to offer for sale at a given price during a given period of time.  Individuals supply factors of production to intermediaries or firms.
  43. 43.  The analysis of the supply of produced goods has two parts: – An analysis of the supply of the factors of production to households and firms. – An analysis of why firms transform those factors of production into usable goods and services.
  44. 44.  There is a direct relationship between price and quantity supplied.  Quantity supplied rises as price rises, other things constant.  Quantity supplied falls as price falls, other things constant.
  45. 45.  Law of Supply  As the price of a product rises, producers will be willing to supply more.  The height of the supply curve at any quantity shows the minimum price necessary to induce producers to supply that next unit to market.  The height of the supply curve at any quantity also shows the opportunity cost of producing the next unit of the good.
  46. 46.  The law of supply is accounted for by two factors: – When prices rise, firms substitute production of one good for another. – Assuming firms’ costs are constant, a higher price means higher profits.
  47. 47.  The supply curve is the graphic representation of the law of supply.  The supply curve slopes upward to the right.  The slope tells us that the quantity supplied varies directly – in the same direction – with the price.
  48. 48. S A Quantity supplied (per unit of time) 0 Price(perunit) PA QA
  49. 49.  Supply refers to a schedule of quantities a seller is willing to sell per unit of time at various prices, other things constant.
  50. 50.  Quantity supplied refers to a specific amount that will be supplied at a specific price.
  51. 51.  Changes in price causes changes in quantity supplied represented by a movement along a supply curve.
  52. 52.  A movement along a supply curve – the graphic representation of the effect of a change in price on the quantity supplied.
  53. 53.  If the amount supplied is affected by anything other than a change in price, there will be a shift in supply.
  54. 54.  Shift in supply – the graphic representation of the effect of a change in a factor other than price on supply.
  55. 55. Change in quantity supplied (a movement along the curve) Price(perunit) Quantity supplied (per unit of time) S0 $15 A 1,250 1,500 B
  56. 56. Price(perunit) Quantity supplied (per unit of time) S0 Shift in Supply (a shift of the curve) S1 $15 A B 1,250 1,500
  57. 57.  Other factors besides price affect how much will be supplied:  Prices of inputs used in the production of a good.  Technology.  Suppliers’ expectations.  Taxes and subsidies.
  58. 58. Prices of Related Goods and Services Number Of Producers Expectations Of Producers Technology And Productivity Resource Prices Supply
  59. 59.  When costs go up, profits go down, so that the incentive to supply also goes down.
  60. 60.  Advances in technology reduce the number of inputs needed to produce a given supply of goods.  Costs go down, profits go up, leading to increased supply.
  61. 61.  If suppliers expect prices to rise in the future, they may store today's supply to reap higher profits later.
  62. 62.  As more people decide to supply a good the market supply increases (Rightward Shift).
  63. 63.  Market supply refers to quantity of a commodity that all the firms are willing and able to offer for sale at a given price during a given period of time.  The market supply curve is derived by horizontally adding the individual supply curves of each supplier.
  64. 64. Quantities Supplied A B C D E F G H I (1) Price (per DVD) (2) Ann's Supply (5) Marke tSupply (4) Charlie's Supply 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 0 1 2 3 4 5 6 7 8 0 0 1 2 3 4 5 5 5 0 0 0 0 0 0 0 2 2 0 1 3 5 7 9 11 14 15 (3) Barry's Supply
  65. 65. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 PriceperDVD Charlie Barry Ann Quantity of DVDs supplied (per week) Rs. 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0 I H G F E D C B A Market Supply CA
  66. 66.  The opportunity cost of producing and selling any good is the forgone opportunity to produce another good.  If the price of alternate good changes then the opportunity cost of producing changes too!  Example Mc Don selling Hamburgers vs. Salads.
  67. 67.  When taxes go up, costs go up, and profits go down, leading suppliers to reduce output.  When government subsidies go up, costs go down, and profits go up, leading suppliers to increase output.
  68. 68.  Measures the responsiveness of supply due to a change in price. D E F : - THE RATIO BETWEEN % CHANGE IN QUANTITY SUPPLIED TO THE % CHANGE IN PRICE.
  69. 69. Percentage Change in Quantity Supplied Percentage Change in Price PES = Remember: Es = coefficient of price elasticity QS = Quantity Supplied P = Price PES = % ∆QS % ∆P
  70. 70. •PEs > 1 supply is elastic •PEs < 1 supply is inelastic •PEs = 1 Unitary Elastic •PEs= ∞ Totally Elastic •PEs= 0 Totally In-Elastic
  71. 71. PRICE P1 P2 0 Q1 Q2 S QUANTITY
  72. 72. PRICE P1 P2 0 Q1 Q2 S QUANTITY
  73. 73. PRICE P1 P2 0 Q1 Q2 S QUANTITY
  74. 74. PRICE P1 0 S QUANTITY
  75. 75. PRICE P1 P2 0 S QUANTITY
  76. 76.  Time  Production capacity  Producer or chief  Stored products

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