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Explain how supply schedules and supply curves can help businesses make production decisions.

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Tyler Takayama eNotes educator | Certified Educator

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Supply curves help firms make production decisions by detailing a customer's willingness to pay (price) for a specific level of output. A better understanding of the customer's willingness to pay allows the firm to maximize (should it choose to do so) the profitability of that specific relationship. In addition, the firm can combine the supply curves of individual customers to create a segment or industry-specific aggregate supply curve.

A supply schedule is simply the relationship of price and quantity supplied detailed in a tabular format. It's helpful for readability, but in essence it provides the same information as the supply curve.

Below are a couple examples of how understanding customer-specific supply curves helps businesses:

1. It can reduce waste. When a firm is producing optimally, there is a reduction of waste throughout the supply chain, such as reduced holding costs and reduced obsolescence.

2. It can maximize profitability. When a firm understands a customer's willingness to pay, it can price at a point that extracts the most value from that specific business relationship.

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pohnpei397 eNotes educator | Certified Educator

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Supply schedules and supply curves can help businesses to make production decisions because they show firms how much they can afford to produce at any given price level. 

A supply schedule is simply the set of numbers that creates the supply curve.  It is a set of coordinates showing a price level and a corresponding level of output.  This tells a firm how much it can produce at a given price.  This is important for the firm.

When the firm looks at the supply schedule and the curve that comes from it, it can see how much it should produce.  The firm can presumably know what the price for its products is.  When it sees how much it can sell its product for, it simply goes to the supply schedule to see how many units it can make at that price.  In this way, the supply curve and schedule tell the firm how much of its product to make at any given price.

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