Question
Explain any three causes of increase in supply of a commodity.
✓
Answer
The following are the reasons of increase in the supply of a commodity:
- An improvement in production technology: When there occurs an improvement in production technology used by the firm, the cost of production declines and consequently the firm would supply more than before at the given price.
- A fall in the price of inputs: When price of inputs (i.e., wages of labour, price of raw materials and fuel) goes down, the unit cost of production will decline and consequently the firm would supply more than before at the given price.
- A reduction in the rate of excise duty: When the rate of excise duty is reduced by the government, the unit cost of production will decline and consequently the firm would supply more than before at the given price.
- A fall in the price of related goods: Suppose wheat and sunflower are the two goods which a farmer produces. If the price of sunflower falls, then it would not be profitable for the farmer to produce more sunflower. The farmer would withdraw some land and other resources from the production of sunflower and devote them to the production of wheat, the price of which has not changed. This would increase the supply of wheat, implying that the supply curve of wheat would shift to the right.
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A table showing TC and TR of a firm is given. Calculate MC and MR and find out the equilibrium level of output.
|
Output
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
9
|
10
|
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TC
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45
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80
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95
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105
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135
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175
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225
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285
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360
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440
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TR
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40
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80
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120
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160
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200
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240
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280
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320
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360
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400
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Complete the following table:
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Output (Units)
|
Average Cost (₹)
|
Marginal Cost (₹)
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1
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12
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-
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|
2
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10
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-
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|
3
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-
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10
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4
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10.5
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5
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11
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6
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17
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