Supply Curve of a Firm

Supply Curve of a Firm

A firm’s supply is the quantity it chooses to sell at a given price, assuming technology and the prices of factors of production remain unchanged. This is not the same as the quantity it can produce — it is the quantity it wants to sell at that price, given its profit-maximising decision.

The relationship between price and quantity supplied is recorded in a supply schedule, which is a table showing the quantities a firm offers for sale at various prices, with technology and factor prices held constant. The same information can be plotted as a graph, called a supply curve.

On the supply curve, the market price is measured on the vertical axis (y-axis) and the quantity supplied is measured on the horizontal axis (x-axis). Each point on the curve tells you: at this price, the firm will supply this many units. The curve is drawn for a given state of technology and given factor prices — if either changes, the entire curve shifts.

The textbook distinguishes between two time horizons for the supply curve: the short run and the long run. In the short run, at least one factor of production is fixed (typically capital), so the firm cannot adjust its plant size. In the long run, all factors are variable, and the firm can enter or exit the industry. These two settings produce different shapes and positions for the supply curve.