Ch. 3: Supply: Thinking Like a Seller

The supply curve is upward-sloping because...

the marginal cost curve is upward-sloping.

If you have a job:

you are a supplier of labor to your employer.

why are supply curves upward sloping?

higher prices are associated with larger quantities.

In individual supply curve, _____ prices lead to _____ in the quantity supplied

lower; a decrease

your supply curve is also your _____________ curve

marginal cost

When your suppliers increase the prices of your inputs, they increase your _____, and this will shift your supply curve to _____.

marginal costs; the left

When new businesses enter the market, the supply from these businesses needs to be added to the _____. That means they increase the total quantity supplied at each price, shifting the supply curve to _____.

market supply; the right

Supply curves are upward-sloping because of rising marginal costs due to:

1) diminishing marginal product 2) rising input costs.

perfect competition

1) all firms in the market are selling an identical good; and 2) there are many sellers and many buyers, each of whom is small relative to the size of the market.

variable costs

costs that vary with the quantity of output you produce

The Rational Rule for Sellers is important but does NOT: a) help managers to keep a laser-like focus on their marginal costs when making supply decisions. b) guide managers in making the decisions that will earn their businesses the largest possible profit. c) provide useful advice for businesses. d) tell sellers how to set the price against the competitors.

d) tell sellers how to set the price against the competitors.

fixed costs

costs that don't change when you vary the quantity of output you produce

how do sellers respond to a low market price?

- lower price means fewer businesses will be profitable, and thus fewer businesses will be willing to supply their goods and services. - a lower price leads a smaller total quantity to be supplied

As you calculate your marginal cost, should you be including any fixed costs?

NO! make sure that it reflects only the variable costs that you'll incur from producing extra product

Rational Rule for Sellers in Competitive Markets

Sell one more item if the price is greater than (or equal to) the marginal cost.

individual supply curve

a graph of the quantity that a business plans to sell at each price; it summarizes a business's selling plans.

substitutes-in-production

alternative uses of your production capacity

price-takers

buyers and sellers must accept the price the market determines

_____ is the marginal product of an input that declines as you use more of that input

diminishing marginal product

When you're operating in a perfectly competitive market, your best strategy is to charge a price that is _______________ your competitors are charging.

pretty much identical to what

which way does the individual supply curve slope?

upward

When following the Rational Rule for Sellers in Competitive Markets, it is NOT true that: a) Price = Marginal cost. b) your supply curve is upward-sloping because of rising marginal costs. c) your supply curve is your marginal cost curve. d) your supply curve is downward-sloping because of rising marginal costs

d) your supply curve is downward-sloping because of rising marginal costs

When things other than _____ change, your supply curve may _____

price; shift