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Question

Why does supply curve slopes upward? What are the assumptions of law of supply?

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Solution

Decisions to supply are largely determined by the marginal cost of production. The supply curve slopes upward, reflecting the higher price needed to cover the higher marginal cost of production. The higher marginal cost arises because of diminishing marginal returns to the variable factors.

Assumptions of the Law of Supply:-

1)There this no change in the price of the factors of production.
2)There this no change in the technique of production.
3)There this no change in the goal of the firm.
4)There this no change in the price of related goods.
5)There this no change in business expectations.

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