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How does an increase in the price of an input affect the supply curve of a firm?

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Solution

An increase in input price shifts the marginal cost curve of the firm upward. Accordingly, the supply curve shifts upward .

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Q. Suppose the demand and supply curves of salt are given by:
Qd = 1000 - p
Qs = 700 + 2p
(a) Find the equilibrium price and quantity.
(b) Now suppose that the price of an input used to produce salt increased so that the new supply curve is
Qs = 400 + 2p
How does the equilibrium price and quantity change?
(c) Suppose that the government has imposed a tax of Rs. 3 per unit of sale. How does it affect the equilibrium price and quantity?

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