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A firm's short-run supply curve is the marginal cost curve above the shutdown point—the short-run marginal cost curve (SRMC) above the minimum average variable cost. The portion of the SRMC below the shutdown point is not part of the supply curve because the firm is not producing any output. [13]
Economists distinguish between short-run and long-run supply curve. Short run refers to a time period during which one or more inputs are fixed (typically physical capital), and the number of firms in the industry is also fixed (if it is a market supply curve). Long run refers to a time period during which new firms enter or existing firms exit ...
The short-run AS curve is drawn given some nominal variables such as the nominal wage rate, which is assumed fixed in the short run. Thus, a higher price level P implies a lower real wage rate and thus an incentive to produce more output. In the neoclassical long run, on the other hand, the nominal wage rate varies with economic conditions ...
The short-run supply curve for a perfectly competitive firm is the marginal cost curve at and above the shutdown point. Portions of the marginal cost curve below the shutdown point are not part of the SR {\displaystyle {\text{SR}}} supply curve because the firm is not producing any positive quantity in that range.
The addition of a supply relation enables the model to be used for both short- and medium-run analysis of the economy, or to use a different terminology: classical and Keynesian analysis. [15] A main example of this is the Aggregate Demand-Aggregate Supply model – the AD–AS model. [15]
Whereas the long-run aggregate supply curve (LRAS) is vertical, the short-run aggregate supply curve will have a positive slope [5]: 377 or, in the extreme case of a completely constant price level, be horizontal. [5]: 268 The equation for the aggregate supply curve in general terms may be written as
The graph depicts an increase (that is, right-shift) in demand from D 1 to D 2 along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S). A common and specific example is the supply-and-demand graph shown at right. This graph shows supply and demand as opposing curves, and the ...
If the firm is a monopolist, the marginal revenue curve would have a negative slope as shown in the next graph, because it would be based on the downward-sloping market demand curve. The optimal output, shown in the graph as Q m {\displaystyle Q_{m}} , is the level of output at which marginal cost equals marginal revenue.