Why supply curve is upward sloping?

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Expert Solution

Supply curve is upward sloping indicating that as quantity increases, price also increases. This means there is positive relationship between price and quantity supplied.
One reason is increasing costs. This is because as output of a firm increases, its marginal cost of production will also increase. So, with increase in output, firm will increase the price to cover the marginal cost of production. Thus, supply curve is upward sloping to get higher price for higher output to cover the marginal cost of production.
Another reason is law of diminishing marginal returns. As, firm increases the output by increasing the amount of variable factor keeping the amount of fixed factor constant, eventually the marginal returns of the variable factor will diminish. So, each additional unit of the variable factor will contribute less to the total output. Thus output will increase at a decreasing rate so cost will increase and thus higher price will be charged to cover the increasing cost. Therefore, supply curvewill be upward sloping.

Rahul Sunny answered 1 year ago

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