Short run SUpply Curve

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Short run SUpply Curve

As seen previously, the short-run is a period in which the capital equipment is fixed and the increased demand is met only by the intensive use of the given plant, i.e.by increasing the amount of the variable factors. We have studied above that a firm under perfect competition produces an output at which marginal cost equals price. TIle short-run marginal cost curve of the firm. therefore. indicates the quantities which the firm ·will produce in the short run at all possible prices. ‘I Hus.Hu; short-run marginal curve (lr till’ lirm is the supply curve or Implied’ firm in the short-run.This is illustrated in the firm will produce or supply an amount equal to OM4 ‘ since only at this output. price OP4 equals marginal cost. Similarly, at price OP 3′ the linn will supply an amount OM,and at prices OP2 and OP, it will supply the amounts OM2 and OMI respectively. As explained before. a firm in the short-run will not supply at prices below the minimum average variable cost. since at prices below the minimum drugs variable cost. it will not he covering even variable costs. Therefore, the linn’s short-rull  curve is i dont icul with Ihal porliollarl hidil JlII’H’ The minimum point of till  vondrehle rusl (SAVe) curve. The quantity supplied would be zero at nil prices less than the minimum average variable cost.The firm’s short-run supply curve, therefore, consists of the shaded or thick (not dotted) segment(a). The short-run supply curve for the whole perfectly competitive industry is derived by the lateral summation (i.e., adding up sideways) of (hat part of all the firms’ marginal cost curves which lies above the minimum points on their average variable cost curves. If a hypothetical competitive industry consists of 100 identical single-plant firms,(a), the industry would supply an amount equal to 100 OM. at price OPI’ 100 M2 lit price OP2 ‘ 100 OM3 at price OPl ‘ and so on. The industry would not supply any ou put at prices less than OPo . SRS is the short-run supply curve of the industry.

It may be noted that while have been drawn on the same scale and represent price per es of the  same. Thus, we see that the -run supply curve of the perfectly competitive ind try always slopes upwards, since the short-run cost curve (above the minimum point of the C of individual firms always slopes upwards too. Ho steeply will the industry’s short-run suppl e rise will obviously depend on the slope of t curves of the individual firms in the ind elasticity of the short run supply curve of the . will depend on the elasticity of the energy curves uf the individual firms in the industry

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