Long run supply curve of a firm
Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
The long-run supply curve of a firm shows how much a price-taking firm will produce at each market price once it can change all its inputs. It is the rising part of the LRMC (long-run marginal cost) curve from and above minimum LRAC (long-run average cost), plus zero output at every price below minimum LRAC. In the long run there are no fixed costs, so shutting down costs the firm nothing. It will produce only if price covers its full average cost (p ≥ LRAC). At any price on the curve, the firm chooses output where p = LRMC.
Example
Take a sugar mill whose market price stays below its minimum LRAC year after year. In the long run it produces nothing on this curve, so it exits, is sold or is restructured. If the price rises above minimum LRAC, it produces where price equals LRMC.
Don't confuse with
- Short-run supply curve of a firm: this starts at minimum AVC (average variable cost), not minimum LRAC. In the short run the firm may keep producing at a loss, because its fixed costs are already paid.
Related concepts
- Supply
- Supply schedule
- Supply curve
- Short run supply curve of a firm
- Shutdown point
- Break-even point