What is the supply curve of a firm in the long run?
In the long run as there is no fixed cost the perfectly competitive firms supply will be the summation of the upward sloping portion of SMC above the minimum point of LAC (When price minimum LAC) and the vertical portion of the price axis (when price minimum of LAC) the long run supply curve of a perfect competitive firm is derived in two stages.
1. When price is equal to the minimum of LAC:
Let us suppose that the firm is facing market price OP that exceeds the minimum of LAC. MC is equal to MR (at point E) and MC is positively sloped at this point of intersection. Also the price is greater than the
minimum of LAC. Thus the firm is at long run equilibrium facing the price OP and producing Oq1 units of output. The supply curve is SS represented by the upward portion of LMC above the minimum of LAC.
2. When the price is less than the minimum of LAC:
Let us suppose that the market price faced by a firm is OP1 which is less than the minimum of LAC. at this price the firm would not produce any output because
producing any output will lead therefore the firm would not produce anything so the supply curve of the firm in the long run for the price less than the minimum of LAC is
given S1S1 and is represented by the darkened vertical part of the price axis.
Combining 1 st and 2 nd stages the firms long run supply curve under perfect competition is given by (S1S1 + SS).
Popular Questions of Class 12 Micro Economics
- 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?
- Q:-
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?
- Q:-
Suppose a consumer’s preferences are monotonic. What can you say about her preference ranking over the bundles (10, 10), (10, 9) and (9, 9)?
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