question_answer

Explain how technological progress is a determinant of supply of a good by a firm.

Or

Explain how input prices are a determinant of supply of a good by a firm.

Answer:

The level of technology directly affects the supply of a good. That is, while other things remain the same, there exists a positive relationship between the state of technology and the quantity produced. With the appreciation in the level of production techniques, per unit cost of production goes down. This encourages the producers to produce higher quantities of goods, thereby increasing the supply of the goods.

On the contrary, a depreciation in the production technology raises the per unit cost of production, thereby decreasing the supply of good.

Or

Input prices are related to the supply of a good. If the prices of inputs increases then the cost of production also increases, while other things remain the same. Due to the rise in the cost of productions, it becomes relatively less profitable for a producer to produce the good. Consequently, lesser quantity is supplied at the given price. On the other hand, if the input prices falls, the cost of production also falls, thereby enabling the producer to supply more quantities of output at the given price. Thus, the change in the input prices positively affects the supply of a product.