Economic supply- how much of an item a firm or market of firms is willing to produce and sell- is determined by what production quantity maximizes a firm's profits
. The profit-maximizing quantity, in turn, depends on a number of different factors. For example, firms take into account how much they can sell their output for when setting production quantities. They might also consider the costs of labor and other factors of production when making quantity decisions.
Economists break down the determinants of a firm's supply into four categories:
- Input Prices
Supply is then a function of these four categories. Let's look more closely at each of the determinants of supply.