Forum Archive Index - May 2001

["robin court" <bushvalley@hotmail.com>]

Not really off the topic. After all, what is it that determines how much of 
their holdings sharechatters supply to the market? (assuming of course that 
they do).
If price exceeds marginal cost then the net revenue (i.e. profit from an 
additional unit sold (i.e. its price) exceeds the cost of producing it (i.e. 
its marginal cost). So producing more when price exceeds marginal cost 
increases revenue, which is presumed to be the aim.
Conversely if price is lower than marginal cost  then producing/selling less 
reduces loss per (marginal) unit.
You need to be above average variable cost because if price doesn’t cover 
average variable cost then you make a loss on any units of output 
produced/sold.
If costs are increasing heaps between units then you need a suitably high 
price to persuade you to produce more. This is just what the supply curve is 
– how much does increasing price induce you to produce/sell.
Maybe this is of some use to you. Read Alfred Marshall or some of the 
progenitors of this stuff to get some inspiration and motivation for this 
sort of thing. Modern texts/teachers I agree can be pretty dull.

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