ECON1101 - Perfectly Competitive Supply

In a perfectly competitive market, supply is determined by marginal cost.

Signs of Perfect Competition

  • No entry restrictions (to the market)
  • Existing firms have no advantages over new firms
  • Many firms are selling the same product
  • Sellers and Buyers are well informed of prices
  • Every firm is a price taker (a firm that cannot influence the market price of a good or service).
  • Perfectly elastic demand for all firms

Reasons for the Upward Sloped Supply Curve

  • Costs rise with expanded production
  • The most attractive Opportunity Costs are exploited first
  • Different sellers face different Opportunity Costs.

Variable Factors

Factors that shift with output, examples are:

  • Labour
  • Raw materials

Fixed Factors

Factors that cannot be changed regardless of the output, examples are:

  • Buildings
  • Capital Equipment

The quantity on a market supply curve at point x is the sum of all suppliers' quantities at point x.