Offer function

economic-dictionary

The supply function is the equation that represents the quantity manufactured of a good as a function of its price and / or other relevant variables.

The supply function can include factors such as technology, input prices, the state of the economy (recession or expansion), among others. Through it, an attempt is made to explain how an industry's competitors decide how much to produce.

Given the above, the supply function can be expressed, for example, as follows:

It should also be noted that the supply curve is the graphical representation of the supply function.

Characteristics of the offer function

The characteristics of the supply curve are as follows:

  • The equation should reflect a positive relationship between the quantity supplied and the price of the product. This, because sellers will be willing to bring more stock to the market if they will pay them more for their good or service, and vice versa. This is known as the law of supply.
  • The function reflects the willingness to sell of the company, but not the final amount that will end up being traded in the market equilibrium.
  • An increase in production costs implies that the supply curve shifts to the left. This means that the minimum price accepted by the company in exchange for its product (p1> p2) is increasing, as we can see in the following image:

  • Technological advances have the effect of reducing production costs. Thus, the opposite happens to the previous point and the supply curve shifts to the right. This means that, to obtain the same benefit, the firm could now accept a lower price for its merchandise (p2

  • Expectations are another variable that plays an important role: the more optimistic the businessman is regarding factors such as the country's economic growth, the more stock he will bring to the market. Likewise, the perspectives on the prices of inputs influence. If a rise is expected, the bidder will decrease its production.
Production function

Example

Let's look at an example of a bid function. Let's imagine that 600 kg of potatoes are produced in the market when the price is US $ 1 per kg. However, if the price rises to US $ 2 per kg, the stock for sale increases to 650 units.

If we assume that the supply function is linear, what would be the slope and its mathematical representation?

First, we find the slope (m):

Then, we replace with a value for the price and another for the quantity, both that correspond, and we will obtain the offer function:

Demand function Offer shifts

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