Sunday

The Supply Curve


On the left we see a supply curve.

As you can see, the supply curve goes up from left to right.

OK so far?



But.....

As the price rises, there will come a time when a lot of firms join the industry. Surely then the supply curve would flatten out?

Also, as production incrases, firms will get economies of scale - so surely the supply curve will shift to the right?

Thoughts...

1 comment:

  1. As the price rises, there will come a time when a lot of firms join the industry. Surely then the supply curve would flatten out?

    I thought that 'flattening' is related to price elasticity of supply in this case. Price elasticity of supply show the responsivness of supply to changes in price. Well, in some cases yeah, the supply curve may become a little bit more close to be flattened out, BUT! we should remember that supply cannot be infinite, so only land's supply curve can be perfectly supply inelastic. if we are talking about perfectly supply elastic things, then there is no much point in producing a product - if the demand for the product rises, the supply will still be the same and so there's no way to make an extra profit. i may be mistaken, but it seems to me that perfectly elastic supply would exist only in perfect competition.

    Also, as production incrases, firms will get economies of scale - so surely the supply curve will shift to the right?

    Depends on how much the prouction increases. Economies of scale may be achieved, yes, but according to law of dimisihing returns, the productivity will fall eventually, which will lead to diseconomies of scale, therefore, a shift of the supply curve to the left.

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