Here, we are only concerned with the elasticity of supply with respect to price, that is, the responsiveness of supply to variations in the price of the good being supplied. The elasticity of supply is a measure of the responsiveness of supply to some influence. Changes in technology may also shift the supply curve by changing the cost of production per unit of output.

Examples are the impact on harvests of the weather or outbreaks of pests and diseases. Movements along the supply curve result from a change in the price of the good being supplied ( ceteris paribus).Ī shift in the supply curve is caused by factors that affect the cost of production, or any other factor affecting the volume of production other than the price of the good itself. First, determine the enterprise’s profit-maximising output degree when the market cost price is greater than or equal to the minimum AVC. Sometimes due to sudden or seasonal demand, some inputs, but not all, need to be changed to achieve the desired output. It is a brief period within which a business must react to changes in supply or demand. We shall divide this derivation into two parts. Short run refers to a production planning arrangement wherein at least one production input remains fixed while the rest are variable.

reduce output if prices fall or costs increase Short Run Supply Curve Of A Firm Short Run Supply Curve of a Firm Let us derive a short-run supply curve for an enterprise.

raise output if prices rise or costs fall.

It is sufficient to understand that, providing one accepts the profit maximising assumption, firms/suppliers will, ceteris paribus

Now that we have introduced the demand schedule and taken a look at the factors that influence demand, we turn our attention briefly to supply.

Supply inshort run