Producer Behaviour and Supply Test - 4

Pricequantity supplied

In this schedule we can see that as the price of the commodity increases , its supply also increases

In the short run, only the variable factors can be changed. Fixed factors cannot be changed in the short run. 

It refers to the amount received by a firm from the sale of a given quantity of a commodity in the market.

MRn=TRn−TRn−1

In the short run variable factors like labour, raw materials can be changed easily. It is difficult to change fixed factors like land, machinery, equipments, etc in the short period as procuring/selling land or machinery or capital will take time and it is difficult to change them in the short period.

Symbolically 

Ox=f(i1,i2,i3...........in)

where O_x =output of a commodity x

f= functional relationship

i1,i2,i3,......in=inputs needed for Ox

It is the tabular statement showing various quantities of a commodity that all the producers are willing to sell at various levels of price during a given period of time.

For eg. if you are working in a restaurant at a salary of Rs. 50,000. and you receive an offer to work for a news channel which will pay you Rs. 30,000 and another offer to work in a administrative office which will offer you 40,000 Rs. 

In this case the opportunity cost of working in the restaurant is the cost of the next best alternative foregone, which is the offer of Rs. 40,000 for working in a office.

According to the law of supply there is a direct relationship between the price of the commodity and the qty supplied. If the price increases qty supplied increases and vice versa.

It is inverse U shaped because the initially the total product increases at a increasing rate, and then it increases at a diminishing rate and finally the total product starts decreasing.

It is because Average product increases at an increasing rate, then it starts decreasing in the second stage and continues to decrease in the third stage but AP will always be positive.

In the long run all the factors can be changed. All the factors (variable and fixed) become variable factors in the long run. 

payments made to hired labour, rented land or building, interest paid on loan taken from third party are all explicit factor payment as cash is actually going out from the business.

It is the cost of self supplied factors.

The relationship between cost and output is known as cost function. It is expressed as C = f(q)

where C= Cost of production

q= Quantity of output

f = functional relationship

Fixed cost remains constant irrespective of the level of output. Fixed cost will remain the same even when the output is zero. But variable costs varies with the output. More output means more variable cost and vice versa. There will be variable cost when output is zero.

Average revenue is the total revenue divided by the number of units sold. 

AR = TR/Number of units sold

It points to the reaction of the sellers to a particular change in the price of the commodity.

The change in total product is due to the change brought about by an additional unit produced, which is the marginal product.  Since fixed cost do not change, it is only the change in variable factors which is reflected in the marginal product. and the change in total product depends upon the change in marginal product.

cost of production refers to the different expenses that a firm incurs in producing a good or service. There are two types of costs . Fixed costs and variable costs.

When production cost is expressed in terms of monetary units, it is called money cost.

TP is calculated as the sum of the marginal product.

TPn=MP1+MP2+MP3+........+MPn

MPn = TPn − TPn − 1

Average product of an input may be defined as total product per unit of employment of a variable input.

Average Product =  

Total Produt/Units of Variable Input

It is the locus of all the points showing various quantities of a commodity that a producer is willing to sell at various levels of price.