If a firm fails to adequate its production to the new marginal costs, there will be a loss in profits. In order to optimise, firms will have to constantly adapt their production to the changes in their marginal costs. It is common that input prices vary over time, causing firms to have to make adjustments. If this is not the case the firm will not achieve its highest level of profit and could even be incurring in losses. We must consider that the optimum production level of a firm is that in which marginal revenue (price) equals marginal cost, as long as it also covers its average variable costs. The amount that is produced by each individual firm is subject to its optimal level of production. The total supply of the industry is the aggregate of the supply of all the individual firms. Short run cost analysis would not be properly taught without the inclusion of demand and supply curves and their correct understanding, specially how its shifts may affect firms’ cost functions.
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