ABSTRACT
The supply of goods depends directly on cost conditions, but more fundamentally on production functions and the supply of factors of production. If production functions were homogeneous of the first degree, cost curves and the relation between output and factor inputs take a very simple form. A firm would minimize the cost of producing any output by always locating at the point on each isoquant that touched the lowest isocost curve. Even at a moment in time, the functions vary from firm to firm, and, of course, from product to product as "entrepreneurial" knowledge and the nature of the product vary. If all firms in the same industry faced the same factor prices and had the same homogeneous of the first-degree production function, they would all have the same infinitely elastic marginal cost curve. Declining sections of cost curves would be interpreted, therefore, in terms of declining factor supply curves; rising sections in terms of inclining supply curves.
