THE THEORY OF
SUPPLY
MICROECONOMICS
, DEFINITIONS + ASSUMPTIONS
Supply = the amount that firms are willing and able to produce and sell at every given price level in a give
time period.
Market supply = total supply brought to the market by producers at each price. To calculate, sum the
individual supply schedule.
Law of Diminishing Marginal Returns = in the SR, adding an additional unit of a variable factor of productio
to a fixed factor of production results in additional output first increasing and then falling.
Marginal cost = the cost of producing an additional unit of output.
Joint supply = a increase/decrease in the supply of one good leads to an increase/decrease in the supply of
by-product.
◦ Occurs when a production process yields two or more outputs e.g. lamb and wool; beef and beef hides.
It is assumed that firms are: PROFIT MAXIMISERS.
SUPPLY
MICROECONOMICS
, DEFINITIONS + ASSUMPTIONS
Supply = the amount that firms are willing and able to produce and sell at every given price level in a give
time period.
Market supply = total supply brought to the market by producers at each price. To calculate, sum the
individual supply schedule.
Law of Diminishing Marginal Returns = in the SR, adding an additional unit of a variable factor of productio
to a fixed factor of production results in additional output first increasing and then falling.
Marginal cost = the cost of producing an additional unit of output.
Joint supply = a increase/decrease in the supply of one good leads to an increase/decrease in the supply of
by-product.
◦ Occurs when a production process yields two or more outputs e.g. lamb and wool; beef and beef hides.
It is assumed that firms are: PROFIT MAXIMISERS.
