Question

discuss how market supply is determined, he most important description of a firm is its short run cost structure. Discuss the components that make up that structure and the relationships between them?

Answer 1

Market supply curve is an upward sloping curve which shows the relationship between market supply and price. As the price increases , supply increases.

A firm has two costs - fixed costs and variable costs. Fixed cost doesn't change with the output but variable costs are dependent on the output.

Marginal cost is the expense incurred on factors of production for producing an additional output.

Total cost = Fixed costs + Variable costs

Total variable costs = Sum of all the marginal costs

Total fixed cost is constant.

Average fixed and variable costs can be defined as per unit fixed cost and per unit variable costs respectively.

Producer can bear the loss of fixed cost in the short run but he will continue the production until and unless he is covering his variable costs. Beyond the point where average revenue is equal to average variable cost, the producer will stop the production.