In: Economics
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.