hwafreelance.blogg.se - Marginal cost and supply curve

Because the MC curve also illustrates the firm's supply curve for the output, and the shift illustrates why advances in production technology leads to increased supply of the output. This is illustrated by shifting the MC curve down and to the right.

Advances in production technology reduces cost of producing the output.

This relation is described in the determinents of supply, but now we have an understanding of the intermediate steps that lead to that outcome. Firms that do not adopt the new production technology will experience reduced revenue but without an offsetting reduction in cost. Graph 30(Impact of Technology)Īn advance in production technology increases supply which puts downward pressure on the market price for the product. Thus a change in technology shifts the firm's (and the industry's) supply curve. The MC curve illustrates the firm's supply curve for it output. Technology shifts the TPP or production function (higher), TVC (lower), and the marginal cost curve (lower). Graph 25 (Marginal Cost as Supply Curve)Įxample to illustrate the impact of technology Combining the MC curves for all the firms producing the product is the supply curve for the industry. This idea that a firm will produce and sell a different quantity of output based on the market price of the product is the same idea that the quantity of a product supplied will rise and fall as the market price rises and falls.Īccordingly, the marginal cost curve (MC) is that firm's supply curve for the output as price of output rises, the firm is willing to produce and sell a greater quantity. Restated, as the price of the output (MR) rises or falls, profit maximizing quantity of output (where MR = MC) also rises and falls. This page describes a relationship between a firm's marginal cost curve (MC) and the firm's supply of the the output.