View Full Version : Factors affecting supply curve
chns91
May 16, 2013, 11:55 AM
Lets suppose that a firm can produce either A or B. Will an increase in the profitability of A lead to an increase in the supply of A? Or would it lead to a decrease/increase in the supply of B?
JudyKayTee
May 16, 2013, 12:27 PM
Let's suppose you post your answer and reasoning and "we" see if it's right?
chns91
May 16, 2013, 01:40 PM
Let's suppose you post your answer and reasoning and "we" see if it's right?
Okay then. I would answer that it leads to an increase in the supply of A and this is because greater profitability will encourage investment, therefore it will shift the supply curve outwards.
ArcSine
May 17, 2013, 04:48 AM
Both your answer and your rationale are correct, as profitability is one of the fundamental drivers of supply.
The second part of the question, though, deserves a little thought. For a firm already operating at/near full capacity, the tradeoff to ramping up production of A is a reduction of B output, at least in the short run.
If you have to pick exactly one of the two options on either side of the word "or", then stick with your "increase of A supply" answer. Just be aware that both of the conditions might hold true simultaneously; it's unfortunate the question's author neglected to clarify the full-capacity and the short- / long-run issues.
chns91
May 17, 2013, 12:31 PM
Both your answer and your rationale are correct, as profitability is one of the fundamental drivers of supply.
The second part of the question, though, deserves a little thought. For a firm already operating at/near full capacity, the tradeoff to ramping up production of A is a reduction of B output, at least in the short run.
If you have to pick exactly one of the two options on either side of the word "or", then stick with your "increase of A supply" answer. Just be aware that both of the conditions might hold true simultaneously; it's unfortunate the question's author neglected to clarify the full-capacity and the short- / long-run issues.
Thank you for the reply, it was very clear! This is what I originally thought too, but this question comes from a multiple choice exam question and I just wasn't sure of the answer. That is why I asked here, since I was between these 2 possible answers.
Thank you again :)