<p>This is so because usually the marginal costs of firms are increasing in production and many economists think also at increasing rate.</p>

<p>Intuitively you are only willing to provide good Q if the marginal costs are less or equal to price <span class="math-container">$MC \leq P$</span>. Providing goods to the market at price below marginal cost is irrational and hence inconsistent with basic assumptions behind supply and demand.</p>

<p>The reason why marginal costs are thought of as usually increasing is that the more you use up some factor of production let’s say capital the scarcer it becomes and hence the return to capital increases and hence the MC increases. Moreover, many economists believe that they also do this at increasing rate (That is if you increase the consumption of labor twice the labor costs will increase more than twice) and hence you get convexity. But this being said you can find concave cost functions and also linear cost functions as well which are neither convex or concave in many textbooks as well.</p>

CC BY-SA 4.0
2020-01-05T07:14:05.390Z
Increasing MC doesn’t explain why supply is concave up—it only explains the upward slope of the supply curve. Because supply isn’t a total cost curve, it’s a marginal cost curve. So a concave up supply curve means the *third derivative* of the cost function must be positive, not the second derivative.
Tejas Subramaniam
CC BY-SA 4.0
2020-01-05T07:15:04.033Z
So the question is whether the *marginal cost function* is concave up, not whether the cost curve is concave up.
Tejas Subramaniam
CC BY-SA 4.0
2020-01-05T11:43:43.827Z
@TejasSubramaniam but as I said in my answer 1. Marginal cost is increasing 2. It is though of increasing at increasing rate (second half of paragraph 3). So it depends on a second derivative of marginal cost (or third derivative of total costs but since convexity is determined by examining second derivative I think it’s best of thinking of it as 2nd derivative of MC than 3derivative of TC). Also, supply is derived from MC of individual firms. It’s valid to just look at  supply itself and just examine second derivative of supply but for intuition you have to go back to marginal cost
1muflon1
CC BY-SA 4.0
2021-05-17T12:00:33.200Z
I have a posted [a new question](https://economics.stackexchange.com/questions/44005) to which your current answer is at least somewhat relevant. I was not able to find any other relevant questions or answers on Economics SE. I would appreciate if you took a look. Thank you.
Richard Hardy
CC BY-SA 4.0
2021-05-17T12:38:53.053Z
@RichardHardy sure I will have a look at it in the evening
1muflon1
CC BY-SA 4.0
2020-01-03T18:51:49.053Z
2020-01-03T18:57:17.710Z
2020-01-03T18:57:17.710Z
1muflon1
<p>Why is it that demand and supply curves are typically shown in graphs, including in Econ 101, as concave up (i.e., convex)? </p>

<p>I know what it entails mathematically—that if <span class="math-container">$p(q_d)$</span> is a demand curve, <span class="math-container">$p''(q_d)$</span> is positive, and if <span class="math-container">$p(q_s)$</span> is a supply curve, <span class="math-container">$p''(q_s)$</span> is positive, but what’s the intuition for why that’s usually the case?</p>

<supply-and-demand>
Why are demand and supply curves shown as concave up?
Tejas Subramaniam
# Why are demand and supply curves shown as concave up?

(Asked by: username_0 on 2020-01-03)

Why is it that demand and supply curves are typically shown in graphs, including in Econ 101, as concave up (i.e., convex)?

I know what it entails mathematically—that if $p(q\_d)$ is a demand curve, $p''(q\_d)$ is positive, and if $p(q\_s)$ is a supply curve, $p''(q\_s)$ is positive, but what’s the intuition for why that’s usually the case?

**Tags:** supply-and-demand


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## 1 answers

### Answer by username_1 on 2020-01-03. Score: 1

This is so because usually the marginal costs of firms are increasing in production and many economists think also at increasing rate.

Intuitively you are only willing to provide good Q if the marginal costs are less or equal to price $MC \leq P$. Providing goods to the market at price below marginal cost is irrational and hence inconsistent with basic assumptions behind supply and demand.

The reason why marginal costs are thought of as usually increasing is that the more you use up some factor of production let’s say capital the scarcer it becomes and hence the return to capital increases and hence the MC increases. Moreover, many economists believe that they also do this at increasing rate (That is if you increase the consumption of labor twice the labor costs will increase more than twice) and hence you get convexity. But this being said you can find concave cost functions and also linear cost functions as well which are neither convex or concave in many textbooks as well.

> **Comments:**
> **username_0**: Increasing MC doesn’t explain why supply is concave up—it only explains the upward slope of the supply curve. Because supply isn’t a total cost curve, it’s a marginal cost curve. So a concave up supply curve means the *third derivative* of the cost function must be positive, not the second derivative.  
> **username_0**: So the question is whether the *marginal cost function* is concave up, not whether the cost curve is concave up.  
> **username_1**: @username_0 but as I said in my answer 1. Marginal cost is increasing 2. It is though of increasing at increasing rate (second half of paragraph 3). So it depends on a second derivative of marginal cost (or third derivative of total costs but since convexity is determined by examining second derivative I think it’s best of thinking of it as 2nd derivative of MC than 3derivative of TC). Also, supply is derived from MC of individual firms. It’s valid to just look at  supply itself and just examine second derivative of supply but for intuition you have to go back to marginal cost  
> **username_2**: I have a posted [a new question](https://economics.stackexchange.com/questions/44005) to which your current answer is at least somewhat relevant. I was not able to find any other relevant questions or answers on Economics SE. I would appreciate if you took a look. Thank you.  
> **username_1**: @username_2 sure I will have a look at it in the evening  

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