In the previous concept, we had learnt that an enterprise’s supply curve is a part and parcel of its marginal cost curve. Hence, any factor that affects a enterprise’s marginal cost curve is of course a determinant of its supply curve. In this concept, there exists two such determinant factors.
- Technological Progress : Assume an enterprise uses 2 factors of production – labour and capital – to manufacture a certain commodity. Subsequent to an organisational innovation by the enterprise, the same degrees of labour and capital now manufacture more units of output. To put it in a different way, to manufacture a given degree of output, the organisational innovation allows the enterprise to use fewer units of inputs. It is expected that this will lower the enterprise’s marginal cost at any degree of output i.e., there is a rightward (or downward) shift of the MC curve. As the firm’s supply curve is essentially a segment of the MC curve, technological progress shifts the supply curve of the firm to the right. At any given market price, the firm now supplies more units of output.
- Input Prices : A change in input prices also affects a firm’s supply curve. If the price of an input (say, the wage rate of labour) increases, the cost of production rises. The consequent increase in the firm’s average cost at any level of output is usually accompanied by an increase in the firm’s marginal cost at any level of output; that is, there is a leftward (or upward) shift of the MC curve. This means that the firm’s supply curve shifts to the left: at any given market price, the firm now supplies fewer units of output.
This is a detailed and an elucidated information about the concept Determinants of a Firm’s Supply Curve. To learn more, stay tuned to BYJU’S.