Know The Supply Curve of A Firm

The law of supply is considered one of the basic theories in economics. It states that an increase in the price would lead to an increase in the supply of goods and services if all the other factors remain constant. In such a case, the supply curve slopes downwards, graphically representing the law of supply. In this article, we talk about the supply schedule too, which can be defined as a tabular representation of several quantities of commodities that are to be supplied at different price levels at different points of time.

Long-run supply curve

The long-run supply curve documents the number of goods available when all inputs are variable. It is more elastic than a short-run supply curve. As a result, the long-run average cost curve encompasses the short-run average cost curves in a u-shaped curve.

Movement along the supply curve

The supply curve exhibits movement along the curve. The movement along the curve can be termed as the graphical representations of the changes in goods and services supplied in accordance with its price while the other factors are constant.

Rightward movement

The supply curve shifts rightward when the quantity of supplied commodities increases at the same price due to favorable changes in non-price factors of production. 

Leftward movement

When the quantity of a commodity is decreased at the same price, a leftward shift occurs. When the price of commodities falls, it gives less revenue to the firms. This leads to a contraction in supply. In this case, it can be said that movement is visible from the right side to the left on the supply curve.

Supply Curve Shift

The supply curve shift takes place with the change in determinant. Hence, the change in the cost will make the supply curve shift its position. With rising costs, the supply curve shifts towards the left. With decreasing costs, it shifts towards the right.

Meaning of supply schedule

• The term supply schedule can be defined as a tabular representation of several quantities of commodities that are to be supplied at different price levels at different points of time.
• The supply schedule represents the relationship between the price of goods with the number of goods supplied. Thus, the supplies can represent the law of supply in a tabular form.

Types of supply schedules

There are two main types of supply schedules: 

• Individual supply schedule 

The individual supply schedule can be defined as a tabular representation of several quantities of product that can be supplied by the firm or individual at the different price levels at the given period of time. All the different factors are considered constant.

• Market supply schedule

The market is full of suppliers who are willing to supply the same sort of commodity. Each of these suppliers possesses an individual supply schedule. Therefore, the market supply is the total of all individual supply schedules of the given market. 

The market supply schedule can be represented as: 

Sm = SA + SB……

Here, Sm stands for market supply schedule.

SA indicates the supply schedule of individual supplier A.

SB refers to the supply schedule of individual supplier B.

Short-run Supply Curve of the Firm

The concept of the short-run supply curve of the firm can be studied through two cases: 

Case 1: 

When the price of the commodities is greater than or equal to the minimum of average variable cost (AVC).

At a certain point in time, assume that the market cost price is p1 that has surpassed the minimum AVC. We must begin by equalizing p1 with that of short-run marginal cost (SMC) on the increasing part of the short-run marginal cost curve. This will lead to the q1 output degree.

It can be noted that AVC at q1 cannot surpass the market cost price p1. Therefore, all three conditions are being satisfied at point q1. That means that when the market cost price will be p1, the output degree in the short run of the company will be equal to q1.

Case 2:

When the price is less than minimum AVC.

For the time being, assume that the market cost price is p2, which is less than the minimum AVC. If the enterprise is focusing on profit maximization and manufacturers have a positive output in the short run, then the market cost price, p2, should have to be greater than or equal to the AVC at that particular output degree. 

When the AVC surpasses p2, the enterprise cannot supply the positive output. When the market price is p2, the enterprise produces zero output.

Conclusion

The curve presenting the relationship between price and quantity supplied is known as the supply curve. With the increase in price per unit, suppliers tend to supply more goods. With the price decrease, less quantity will be supplied.