While discussing about the short run market supply curve, it tends to show the total extent of result as output, which the given manufacturers will try to have the output in the limited span of time for the best available prices. The output of the industry is the aggregation of all the extents which are delivered by every simgle individual firms.
In order to gain the supply curve of market, you can go on to add the supply curve of all these industries. Fig 8.9 will indicate as how this work is done where there are three firms only which are having different production cost in short run. It is crucial to note that the marginal cost curve of every single firm is made exclusively for the portions which are having or which present the information about cost curve of average variable.
At price below P1, industry will not produce any kind of output. This is because P1 is minumim average variable cost of the lowest firm. Three firm will exist between P1 and P2. The supply curve of an industry is same as the portion of the marginal cost of 3 firm MC3. When the price is P2, the supply of the industry is the sum up of qunaity supplies by 3 firms. Firm 1 will supply 2 units along with firm 2 will supply 5 units and 3 firm will supply only 8 units total supply is 15 units.
For the price P3, firm 1 will supply 4 unit firm 2=7 units and firm 3 =10 units, total industry supplies at 21 units. Production supply curve is downward slopping but have the kind of price P2 for which thebottom price at all the three firms are producing. We should draw industry supply curve smoothly and upward sloping.
Surplus from the producer in short run
If the marginal cost for an item is on the rise, then the value of the produce works out to be greater than the marginal cost for each and every unit that is manufactured apart from the penultimate one. Because of this reason the firms can gainaexcess on everythingon the contrary it is also true that it excludes the penultimate unit of the result coming out as output.
While considering the exceess of the manufacturer or the makers it happens to be sum total of all the units which are produced along with the cost of margin is the product and the price is taken into account. The producer surplus tends to measure the area above the surplus curve of the producer and below the price prevailing in the market.
Producer Surplus Versus Profit
Producer surplus is related to profit ignoring the equal part. When it is about the short run then surplus of the producers is always wquivalent to amount generated. which is known as variable profit. But when it is about total profit, it is equivalent to amount generated minus all the costs involved.
So, Producer surplus is equal to
Profit = p = R –VaribaleCost– Fixed cost
So, it can be said that in case the cost which is fixed is in higher value or in other words when it is in positive, then the surplus from the makers is always maximum or higher as compared to the profit while being in the short run.Companyhavemanufacturerexcesswhich totally depends on value involved in the factor of production.
It is also important to note that the frims having high value are having minimum amount of surplus from the producer and the firms having minimum value are havingmaximum amount of surplus from the producers.
Elasticity of market supply
To identify the supply curve of the marketis never an easy task straightforward affair as the situation is not like you go on and add a set of supply curves individually. When prices fall, the businessnes in the marketincrease their produce. The extra amount of output tends to decrease the demand of inputs which is linked to production and eventually may pave way for higher input prices. While considering the price elasticity it is important to measure the importance about the output coming out of industry at given price in the market.
Es = (Q/Q)/ (P/P) where Es stands for the changes in the percentahe share of the quantity supplied Q to a – 1 change in cost as well.
As the marginal price curve is always on the slope upwards, so the elasticity of short run of supply is defintely on the greater sideside. When the marginal cost tends to rise rapidly, which responds to increase in result, the elasticity of supply is indeed low. In the short term trend themakers tend to controlledas far as their capacity is concerned and get it quite difficult to increase the output.
On the extreme side of things, it works out to be the case of effortlessly in elastic supply which tends to arise when the machineries along with the plant is utilized in such a manner greater output can be achieved and this is possible when new plants are being built as well.
Links of Previous Main Topic:-
- Introduction Markets and Prices Preliminaries
- The Basics of Supply And Demand
- Consumer Behavior
- Appendix to Chapter 4 Demand Theory a Mathematical Treatment
- Uncertainty and Consumer Behavior
- The Cost of Production
- Production and Cost Theory A Mathematical Treatment
- Cost in the Long Run
- The Cost of Production Production with Two Outputs
Links of Next Microeconomics Topics:-
- The Analysis of Competitive Markets
- Market Power Monopoly and Monopsony
- Monopolistic Competition and Oligopoly
- Game Theory and Competitive Strategy