Individual Supply Curve in the Short Run and Long Run - Video Tutorials & Practice Problems

Individual Firm Supply Curve in the Short Run

Alright. So now that we've discussed when the firm is going to produce in the short run and the long run, let's see what the firm's supply curve is gonna look like in the short run in the long run. So, remember first, let's talk about the short run. So this is gonna be the short run first here, short run. All right. So here, in the short run, when is it that a firm does not shut down? So a firm does not shut down. It stays open when the price is greater than the average variable cost. Right? That's when they stay open. That's when they stay producing. Right. So, what we're gonna see is that the firm's short run supply curve, uh when we're dealing with perfect competition, it's gonna be the portion of the marginal cost curve above average variable cost. Okay, So that is where we produce in the short run, Right. That's how we discuss it at any price above that minimum. A VC Any of those high prices, we are going to maybe at a loss maybe at a profit, but we are going to produce at any any price above minimum. Abc. Right. So, that's what we see here on this left hand graph, right, on the left hand graph, I have all of our kurds showing. And you'll see, right, if we had a price right here, let's say this price right here, p one that I'm gonna put, we would produce, right, we would produce this quantity where the marginal revenue equals the marginal cost and anywhere, right. Any other price, I could have put a little bit higher, a little bit lower. As long as it's above that. A VC We're gonna keep producing as they cross. Right. It's gonna be all these points where marginal revenue equals marginal cost. Right? But if we were at a point below right, if we were at this price down here uh P. Two, well, we wouldn't produce, right, We're not covering our average variable cost, so we don't produce. That's why I've got that section right here. This little U shaped section of the marginal cost curve kind of shaded out, and then we've got this section right here, this red section over on the left hand side, that's a quantity of zero. Right? So any price up to that minimum abc we're gonna have a quantity of zero. So that's why we get this kind of almost a funky shape. So, I took all those cost curves out and I went over here to the right hand side and that's kind of what the supply curve looks like. So this would be the firm supply curve in the short run, right, short run. All right. So what we see is that it's at any point where the price is greater than the average variable cost, we are going to produce. Right. And that's how we have all these little points points. Points Points points points all the way up the marginal cost curve. Um And that's how our supply curve gets formed, right? So that this black dot right here, that's our minimum, a VC minimum average variable cost. Okay, A VC right there behind me. Alright, cool. So let's go ahead and discuss what the supply curve looks like in the long run. Let's do it in the next video.

Individual Firm Supply Curve in the Long Run

Alright. So now let's discuss the long run. Right, so this is gonna be long run here. Oops go to red long run. Okay, So a firm does not exit the market. So remember does not exit the price market when price is above the A. T. C. Right? So when the P. Is greater than 80 C. We stay in the market, right? We're covering our average total cost. We're gonna make a profit. Okay? So what we're gonna see is that the firm is only producing in the long run when we're at least at A. T. C. Right? So it's gonna be the portion of the marginal cost curve above A. T. C. In the long run, notice how similar the that is to the short run, right? The difference was just a VC. The section above a VC. Alright, so let's see how this makes sense. Right? If we pick the price, say something like this P let me do it in black, let's say P. One right here. Well we would produce at this quantity, right? We would produce this quantity and we would make a profit of the amount above average total cost. Right? The profit would be something like this. So this area right here would be our profit right lips, right, Okay, so I'm gonna erase that and so that's the that's the whole point here, right? We're covering our average total cost. So we're gonna produce just like we saw in the short run right with the average variable costs. So here we would produce, write any of these prices any price level as we move up and up and up, we're gonna produce at all these price levels. Right? So that's kind of how we get this curve right? That's where the curve comes from. And if we had some price below that shutdown point or excuse me, the exit point in this case um then we we would not produce, right? We would not produce here where the marginal cost touches marginal revenue, right? This would be the point, but it's below average total cost. So we're out right, we're exiting the market and we're gonna produce zero over here. That's why we've got this straight line going up at zero all the way up to that average total cost point. So similar to what we saw with the short run here, we've got our long run firm supply. Okay. And that's gonna have this zero portion all the way up to the minimum minimum A. T. C. Right right there and then we start producing anywhere above that. Cool. Alright, so that's pretty simple. I mean I just wanted to show it to you just so you can see how that supply curve is formed, right? We've got this kind of funky shape where we produce zero all the way up to a point and then from that point we start using the marginal cost curve uh to create our supply curve. Alright, so that's what the firm supply looks like. Let's go ahead and move on to the next video