Perfectly inelastic and perfectly elastic supply

A perfectly inelastic supply curve is a vertical line above a certain minimum price necessary to induce убеждать sellers to make the good available for sale. No matter what percentage change in price above выше this minimum price, the percentage change in quantity supplied is always 0. Price elasticity of supply is always 0 along such a curve. Note that the supply curve doesn't hitтолкает the horizontal axis. This is because sellers require нуждается a minimum price before they’ll make the item available for sale in a market (fig. 4.1).

E_S= 0; Price = min; ΔQ_S= 0

Figure. 4.1. Perfectly inelastic supply

When price is fixed, sellers have opportunity to vary the quantity they can offer (fig. 4.2).

Figure. 4.2. Perfectly elastic supply

E_S= ∞ ; ΔP=0 (price constant)

Module 2. Basics of micro and macroeconomics Lecture 5. Business firm

1. Terminology.

2. Basic types of business enterprise.

3. Functions of business firms.

4. Management.

1. Terminology

A business firm is an organization under one management set up for the purpose of earning profits for its owners by making one or more items available for sale in markets.

The terms: firm, business, production organization and enterprise are often used interchangeably to mean the same thing. A business firm is a business organization which owns and operates plants.

A plant is a physical establishment of a factory, farm, mine, store or warehouse – which performs one or more functions in fabricating and distributing goods and services.

A vertical combination of plants is a group of plants, with each performing a different function in the various stages of the producing process.

A horizontal combination of plants is one in which all plants perform the same function.

A conglomerate combination is made up of plants which operate across several different markets and industries.

Multiplant firms may own horizontal, vertical or conglomerate combinations of plants.

An industry is a group of firms that sell a similar product in a market.

The principle of the division of labor is an economic principle whereby individuals specialize in the production of a single good or service, increasing overall productivity and economic efficiency.

There are two methods of economic coordination in a market coordination and firm coordination.

Market coordination is the process that directs the flow of resources into the production of desired goods and services through the forces of the price mechanism.

Firm coordination is the process that directs the flow of resources into the production of a particular good and service through the forces of management organization within a firm.

Manager is an individual or group of individuals that organize and monitor resources within a firm to produce a good or service.

Scale of production

Scale of production is the relative size and rate of output of a physical plant that may be measured by volume or value of firm capital.

A firm's scale of production affects the amount of capital equipment it needs. Owners of firms that require large-scale production are forced to make large expenditures on buildings, inventories, machines, and other tools of production. These purchases can amount to millions of dollars. On the other hand, owners of firms with a small scale of production may spend only a few thousand dollars on capital equipment.