![]() ![]() ![]() That is, in the short-run, a firm must try to cover its’ Variable cost at least. Hence, the marginal cost curve of the firm is the supply curve of the perfectly competitive firm in the short-run.īut, even in the short-run, a firm will not supply at a price below its minimum average variable cost. ![]() If, on the other hand, the price is less than the marginal cost, it is incurring a loss, and it will reduce its output till the marginal cost and the price are made equal. If the price is higher than the marginal cost, it will pay the firm to expand its output so as to equal its price. Under perfect competition, a firm produces an output at which marginal cost equals! Price. Short-run Supply Curve :īy ‘short-run’ is meant a period of time in which the size of the plant and machinery is fixed, and the increased demand for the commodity is met only by an intensive use of the given plant, i.e., by increasing the amount of the variable factors. The cost conditions, in turn, depend on the prices of the factors of production or inputs used by the firms. The quantities that the industry may offer to sell will depend on the price of its product in relation to the cost conditions of the firms. Thus, the supply curve of an industry depicts the various quantities of the product offered for sale by the industry at various prices at a given time. This is the supply of the whole industry. Rather, it is determined by the aggregate supply, i.e., the supply offered by all the sellers (or firms) put together. But the market price is not determined by the supply of an individual seller. 24.1, we have given the supply curve of an individual seller or a firm. ![]()
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