Supply analysis examines the behavior of producers. 'Supply' refers to the quantity of a commodity that a producer is willing and able to offer for sale at a given price. The Law of Supply posits a direct relationship between price and quantity supplied, meaning producers are willing to sell more at higher prices. This results in an upward-sloping supply curve. A change in price causes a movement along the supply curve (expansion or contraction), while changes in other determinants—such as technology, input prices, or government policies—cause the entire curve to shift (increase or decrease). The concept of 'Cost and Revenue' is central, with Total Cost (TC), Average Cost (AC), and Marginal Cost (MC) influencing supply decisions. Revenue concepts include Total Revenue (TR), Average Revenue (AR), and Marginal Revenue (MR). Producers aim to maximize profit, which is the difference between total revenue and total cost.
- Supply is the quantity a producer is willing and able to sell.
- The Law of Supply shows a direct relationship between price and quantity supplied.
- The supply curve slopes upwards from left to right.
- A change in price causes a movement along the supply curve (expansion/contraction).
- A change in other factors (technology, input costs) causes a shift in the supply curve (increase/decrease).
- Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC).
- Marginal Cost (MC) is the change in total cost from producing one more unit.
- Profit is maximized where Marginal Revenue (MR) equals Marginal Cost (MC).