Supply: Costs, Econmies Of Scale And The Supply Curve Chap 6

Question 1

Economies of scale

Answer 1

The conditions under which long-run average cost decreases as output increases.

Question 2

Normal profit

Answer 2

Is the profit reached after the production costs and opportunity costs have been substrated.

Question 3

Producer surplus

Answer 3

The difference between the amount that a producer receives from the sale of a good and the lowest amount that producer is willing to accept for that good.

Question 4

Scale efficiency

Answer 4

A situation where the provider is producing at an output level such that average cost is minimized.

Question 5

Cost functions

Answer 5

the relationship between total costs and output

Question 6

Economic efficiency

Answer 6

A situation in which a producer cannot produce more without increasing cost.

Question 7

supply curve

Answer 7

a supply curve is used to show the relationship between quantity supplied and price. The supply curve refl ects a producer’s willingness to sell at each price and therefore the cost of production. Just as the demand curve shows the relationship between demand and the price level, the supply curve illustrates the relationship between what a producer is willing to produce and the price level. When the good is being sold at a low price, only a few suppliers would be willing to sell it, thus the quantity supplied will be low. When the price exceeds the marginal cost there is a producer surplus.

Question 8

What influences the supply?

Answer 8

The main determinants of supply include:

• the price of the good;
• the prices of inputs used to produce the good (e.g. raw food, people’s time);
• the prices of related goods;
• expected future prices;
• the number of other suppliers;
• technology.

Question 9

Movements and shifts along the supply curve

Answer 9

A movement along the supply curve is associated with a change in price. That is, if the price of a good changes from P1 to P2 then the quantity supplied will decrease from Q1 to Q2. If the price of the good stays the same but another factor infl uencing the behaviour of a supplier changes, then the supply curve will shift