Lecture on Firm's Individual Supply Curve

Key Concepts

• Individual Supply Curve Definition: Represents the minimum possible cost of producing each unit of a good or service.
• Supply Curve Functionality: Indicates how much firms will produce based on the price they receive for each unit.

Cost and Production

• Marginal Cost: Determines how many units a firm can produce for less than a given price.
  • Different firms face different marginal costs due to varying opportunity costs.
• Absolute Lowest Cost: Each firm has a minimum cost for producing each unit.

Firm Examples

• Firm A
  • First unit cost: $1
  • Second unit cost: $2
  • Total variable cost for two units: $3
  • Break-even price: $3 is needed to enter the market.
• Firm B and C
  • At $2 per unit, Firm B produces 1 unit, Firm C produces 3 units.
  • Total market production at $2: 4 units.

Price and Production

• Price Scenarios:
  • $1 per unit: No production as fixed costs prevent profitability.
  • $2 per unit: Firm B and C produce a total of 4 units.
  • $3 per unit: Firm A enters, increasing production to 10 units total.
  • $4 per unit: Full production with a total of 16 units.
  • $5 per unit: Each firm increases production, total 22 units.
  • $6 per unit: Further increase in market quantity supplied.

Graphical Representation

• Supply Curve: Graphing the table of price vs. quantity supplied shows the supply curve.
  • Kinks present due to discrete increases in production capacity.

Law of Supply

• Definition: As the price of a good increases, the quantity supplied also increases.
• Supply Curve Characteristics: Upward sloping, reflecting the positive relationship between price and quantity supplied.

Conclusion

• Market Dynamics: Higher prices incentivize firms to produce more by enabling them to cover higher marginal costs and expand production.
• Real-World Application: Many firms increase production as prices rise, leading to a competitive market landscape.