Civil Engineering Reference
In-Depth Information
as a firm (or society) uses more and more of its resources to produce a specific item,
the cost for each additional unit produced increases disproportionately. We referred
to this as the law of increasing opportunity costs, and it highlights that resources
are generally suited to some activities better than others. It is not possible to
increase continually the quantity supplied of a specific item without cost increasing
at a disproportionately high rate. In other words, when we utilise less well-suited
resources to a particular production activity, more and more units of these resources
have to be used to achieve an increase in output.
A firm's costs will also be affected by its fixed overheads. These vary according
to the size of the firm and the nature of its activities. As we will explain in
Chapter 7
,
the typical construction firm has relatively low fixed costs. The construction
contractor's output is not based in a permanent factory, with all its related fixed
costs. Each new construction site represents the firm's factory, and much of the fixed
capital is hired as and when required.
We are now in a position to begin to appreciate the concept of a
market supply
schedule
. The market supply of a product is given by the sum of the amounts that
individual firms will supply at various prices. For example, at a price of £6 per unit,
we might find that three firms are willing to supply 400, 300 and 200 units per day
respectively. If these three firms make up the whole industry, we could conclude that
at a price of £6 the market supply in this hypothetical industry would be 900 units
per day. Let us consider this example in more detail. The relevant data is presented
in
Table 5.1.
Table 5.1
The individual and market supply schedules for a
hypothetical three-firm industry
We see from the data that as price increases suppliers are willing to produce greater
quantities. At the other extreme, low prices may actually discourage some firms from
operating in the market. By combining the supply from each firm within the industry,
we can identify the total market supply at each price; we do this in the final column.
Price
Quantities Supplied
Total
Market
Supply
Firm A
Units/day
Firm B
Units/day
Firm C
Units/day
£/Unit
4
5
0
300
0
0
300
380
460
500
0
0
200
250
280
290
0
300
900
1,130
1,320
1,410
6
7
8
400
500
580
620
9
10
520
650
295
1,465
