Producer Behaviour and Supply

Production Concepts

Production transforms inputs into output. In the short run at least one factor is fixed; in the long run all factors can be varied.

Total, Average and Marginal Product

Total product is total output. Average product is output per unit of variable input. Marginal product is the change in total product from one additional unit of variable input.

Costs

Total cost = total fixed cost + total variable cost. Average cost is total cost per unit. Marginal cost is the change in total cost caused by one additional unit of output.

Supply

Supply is the quantity a producer is willing and able to offer at a given price during a specified period. A change in own price generally causes movement along the supply curve; changes in input prices, technology, taxes and expectations can shift supply.

MCQ with explanation

Why can marginal cost eventually rise in the short run?
Answer: Because when some factor is fixed, adding more variable inputs can eventually produce smaller additional output. Obtaining each additional unit of output then requires relatively more variable input, raising marginal cost.

Numerical Practice

If total cost at 10 units is ₹500 and total cost at 11 units is ₹540, marginal cost of the 11th unit = ₹540 − ₹500 = ₹40.