2: Market Supply

Learning Objectives

The learning objectives for this chapter are as follows:

• Describe the firm’s production decision, specifically the conditions under which the firm will enter the market and the conditions under which the firm will exit the market.
• Express the firm’s profit maximization problem in terms of revenue and cost.
• Describe and explain the logic of the firm’s profit maximization condition (MR = MC).
• Explain the idea of opportunity cost.
• Identify variables that shift the supply schedule. Be able to predict the direction of the shift.
• Distinguish between competing products in production and joint products in production. Provide examples of each.
• Explain the derivation of input demands from profit maximizing input choices, and describe variables that shift demand schedules for inputs.
• Explain producer surplus and compute producer surplus given a linear supply schedule.