What is the relationship between marginal costs and offer?

In economics, the limit costs are additional costs associated with the production of one unit of the product. Businesses rely on this information to help them make decisions on price and production goals. On the purely competitive market, marginal costs and offer will always be the same. Graphically, the limit costs and the offer can be illustrated by the same positive stain of the cost curve and overlap each other at each price point. However, on a market that is less than perfectly competitive, the relationship between marginal costs and the offer changes and both values ​​are no longer the same.

with increased price levels, quantities and services that companies produce. For example, a company that produces cars will sell a certain number of units for one price, but if the market price is rising, the company will earn more cars to maximize profit. Inverse is also true, leading to a reduction in production as market prices fall.

The same type of relationship can also be seen when examining marginal costs, even if from růof the reasons for reasons. The Reduction Act states that, as companies increase the resources needed to increase production, marginal costs will drop, below, then begin to rise. If you want to understand why, consider a car factory with 100 workers. Adding another 25 workers can help increase production and reduce the limit costs of each new car. However, if the company added another 100 workers, these employees would start to slow each other or get each other in their way, resulting in an increase in marginal costs.

From this example, it can be seen that with the increasing amount of offer, the price also increases automatically. On a perfectly competitive market, the company sets production rates at the exact point where the price equals the limit costs. This is capable of maximum profits and efficiency. Given that the price is constantly fluing due to natural market forces, the rate of production or offer is also constantly changing. This relationship between marginal costs and offer is valid at all costs and continues to apply howthe price varies.

on a market that is not perfectly competitive, this relationship between marginal costs and offer is already valid. For example, a company that has a monopoly on the market may not respond to price changes because it is capable of setting product prices. On this type of market, the company determines the production rate based on demand rather than at marginal costs.