What shifts a firm's supply

Anything that changes a firm's marginal cost shifts its supply curve.

• Technological progress lets the firm produce more from the same inputs, so MC falls, and supply shifts to the right.
• A rise in the price of an input (say, wages) raises MC at every output, so supply shifts to the left.
• A unit tax of ₹t (a tax on each unit sold) raises both LRAC and LRMC by t. Supply shifts left, and the lowest price at which the firm will supply rises by t, to p0 + t.
• A subsidy works the other way: it lowers the firm's cost, so supply shifts right.

Opportunity cost is the gain given up from the next best use of a resource. For example, if a person puts ₹5,000 into her own shop instead of a bank paying 8% interest, the ₹400 of interest she gives up is the opportunity cost of that money. Economists count such costs as part of the firm's costs.