How does the shape of the producer's supply function reflectprice elasticity ? Does cost analysis come into play ? Whatabout time ?? Short Run versus Long Run ??

Answered: How does the shape of the producer's…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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How does the shape of the producer's supply function reflect
price elasticity ? Does cost analysis come into play ? What
about time ?? Short Run versus Long Run ??

Expert Solution

Step 1

The producer’s supply curve showing the price elasticity in the long and short run can be understood considering any market scenario where the demand and the supply can’t change with the same rate as the price changes in the short run. But when it comes to the long run, it does which makes the demand supply to be elastic in the long run & inelastic in the short run relatively.

It is not easy to make changes in the supply when it comes to the situation of the short run as producers need time to set up for more production for the demand, which is actually possible in the long term.

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