What is the supply curve of a firm in the short run?
The short run supply curve of perfect competitive firm is the summation of the upward sloping portion of SMC (above the minimum point of SAVC) where price min SAVC and vertical portion of price axis when price min SAVC.
Stage 1
When the price is greater than or equal to minimum of SAVC i.e, P min SAVC.
At the market price OP the three following conditions for equilibrium are fulfilled:
1. MC = MR
2. MC is upward sloping
3. Price exceeds the minimum of SAVC
At this market price the firm is producing profit maximising output Oq1,
In this case the supply curve of the firm is regarded as the upward sloping part of SMC (above the minimum point of SAVC) i.e SS. When the price is greater than or equal to minimum of SAVC the supply curve is indicted by SS.
Stage 2
When the price is less than the minimum of SAVC
Let us suppose that the firm is facing price OP1 that is lesser than the minimum of SAVC. At this price the firm cannot continue production as it cannot even cover up its variable costs and thereby incurs losses which implies that the firm would produce nothing. Thus it will incur loss that will be equivalent to its fixed costs. It will be lesser compared to the losses associated with producing any positive output level thus the firm will not produce anything at this price and thereby the quantity supplied will be zero. The firms supply curve is indicated by the darkened vertical lines S1S1.
Popular Questions of Class 12 Micro Economics
- Q:-
What is the supply curve of a firm in the long run?
- Q:-
The market price of a good changes from Rs 5 to Rs 20. As a result, the quantity supplied by a firm increases by 15 units. The price elasticity of the firm’s supply curve is 0.5. Find the initial and final output levels of the firm.
- Q:-
A firm earns a revenue of Rs 50 when the market price of a good is Rs 10. The market price increases to Rs 15 and the firm now earns a revenue of Rs 150. What is the price elasticity of the firm’s supply curve?
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Distinguish between a centrally planned economy and a market economy.
- Q:-
How does the imposition of a unit tax affect the supply curve of a firm?
- Q:-
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4. - Q:-
What is the relation between market price and average revenue of a price-taking firm?
- Q:-
What is budget line?
- Q:-
Suppose there are 20 consumers for a good and they have identical demand functions:
d(p)=10–3pd(p)=10–3p for any price less than or equal to 103103 and d1(p)=0d1(p)=0 at any price greater than 103.
- Q:-
Suppose your friend is indifferent to the bundles (5, 6) and (6, 6). Are the preferences of your friend monotonic?
Recently Viewed Questions of Class 12 Micro Economics
- Q:-
What is the reason for the long run equilibrium of a firm in monopolistic competition to be associated with zero profit?
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What do you mean by the production possibilities of an economy?
- Q:-
A consumer wants to consume two goods. The prices of the two goods are Rs 4
and Rs 5 respectively. The consumer’s income is Rs 20.
(i) Write down the equation of the budget line.
(ii) How much of good 1 can the consumer consume if she spends her entire
income on that good?
(iii) How much of good 2 can she consume if she spends her entire income on
that good?
(iv) What is the slope of the budget line?
Questions 5, 6 and 7 are related to question 4. - Q:-
What is the relation between market price and marginal revenue of a price-taking firm?
- Q:-
Explain why the demand curve facing a firm under monopolistic competition is negatively sloped.
- Q:-
How does the budget line change if the price of good 2 decreases by a rupee
but the price of good 1 and the consumer’s income remain unchanged? - Q:-
What is the value of the MR when the demand curve is elastic?
- Q:-
Will a profit-maximising firm in a competitive market produce a positive level of output in the long run if the market price is less than the minimum of AC? Give an explanation.
- Q:-
Suppose the demand and supply curve of commodity XX in a perfectly competitive market are given by:
qD =700 - p
qs = 500 + 3p for p ≥ 15
= 0 or 0 ≤ p <15
Assume that the market consists of identical firms. Identify the reason behind the market supply of commodity X being zero at any price less than Rs 15. What will be the equilibrium price for this commodity? At equilibrium, what quantity of X will be produced?
- Q:-
List the three different ways in which oligopoly firms may have.
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