Individual Supply
Marginal cost
the additional cost incurred in producing one more unit
Marginal revenue
the extra money your business gets from selling an additional unit
Law of supply
the tendency for quantity supplied to be higher when the price is higher
Reason #4 why MC tends to rise
Increasing opportunity cost of time
Variable costs
costs which vary with the quantity of output you produce (wage bill)
Fixed costs
Costs that don't change when you change the quantity of output produced
Reason #1 why MC tends to rise
Diminishing returns (less and less)
Reason #2 why MC tends to rise
Diseconomies of scale (x2 inputs, less than x2 outputs)
Competitive supply curve is also
Marginal cost curve
Reason #3 why MC tends to rise
Rising input prices
The Rational Rule for Sellers
Sell one more item if the marginal cost has not risen to be greater or equal to the marginal benefit
Shutdown condition
Shut down and produce nothing if your revenues do not exceed your recoverable (non-sunk) costs
Law of Diminishing Returns
When a fixed input it held constant, beyond some point increases in the variable input will yield smaller and smaller increases in output
Individual supply curve
a graph plotting the quantity of an item that a business plans to sell at each price
long run
the planning horizon over which all inputs can be changed
short run
the planning horizon over which some inputs cannot be changed (size)
In a competitive market, marginal revenue is equal to
the price of the additional unit you sell
economies of scale
when increasing all of your inputs leads to a proportionately larger increase in output
diseconomies of scale
when increasing all of your inputs leads to a proportionately smaller increase in output