Quantity Supplied
What is Quantity Supplied?
Quantity supplied is the amount of a good or service producers are willing and able to offer for sale at a given price.
The quantity supplied is determined by the market price, holding all else constant. As price rises, quantity supplied also rises. Producers use the concept to determine output levels and pricing strategies. It is graphically represented by the supply curve.
Quantity Supplied: a worked example
A competitive bakery faces rising marginal cost per pie: $3 for the first, $5 for the second, $7 for the third, $9 for the fourth, and $11 for the fifth. A price taking firm produces every unit whose marginal cost sits at or below the price. At $7 a pie it bakes 3, because the fourth would cost $9 to make and fetch only $7. At $11 it bakes 5. Quantity supplied therefore rose from 3 to 5 when price rose by $4. With eight identical bakeries operating, market quantity supplied is 8 x 3 = 24 pies at $7 and 8 x 5 = 40 pies at $11. At $11 one bakery earns revenue of 5 x $11 = $55 against variable cost of 3 + 5 + 7 + 9 + 11 = $35, leaving $20 to cover fixed cost and profit.
The mistake students make with quantity supplied
Quantity supplied gets read as everything a firm could physically produce, or as the stock already sitting in the warehouse. Capacity is a technical ceiling on what is possible, while quantity supplied is the smaller amount a seller chooses to offer at one stated price, and it is a flow per period rather than a stock. A bakery able to bake 40 pies a day may offer 24 at $7 because the remaining pies would cost more to make than they earn. Attach a price and a time period whenever you report a quantity supplied.
Quantity Supplied questions
Why does a firm supply more when the price rises?
Marginal cost climbs as output expands, so a firm keeps producing only while the price covers the cost of the next unit. At a low price the expensive later units are not worth making. Raise the price and several of those units become profitable, so quantity supplied grows. A price taking firm follows the rule of producing up to the output where price equals marginal cost.
Can quantity supplied be zero when the price is positive?
Quantity supplied drops to zero whenever the price fails to cover the cost of the very first unit. With marginal costs of $3, $5, and $7 on the first three pies, a price of $2 makes no pie worth baking, so the bakery offers none at all. The general short run rule is that a firm shuts down when price falls below its minimum average variable cost, because operating would lose more than the fixed costs it owes anyway. Quantity supplied resumes once price clears that level.
How do you find market quantity supplied from individual firms?
Market quantity supplied at a price equals the sum of the quantities every firm offers at that price. With eight identical firms each offering 3 units at $7, market quantity supplied is 8 times 3, or 24 units. When firms differ in cost, add their individual quantities one by one at each price. Repeating that addition across a range of prices traces out the market supply curve.
This is the live Supply and Demand sandbox. Drag the curves, or open the full version.
Related terms
Common comparisons
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