If production costs increase for a firm, what is the likely effect on supply?

When production costs increase for a firm, the cost of producing each unit of output rises. This change directly impacts the firm's supply decisions. In general, firms aim to maximize profits, and when costs rise without a corresponding increase in the selling price, the profitability of producing goods decreases.

As a result, some firms may choose to produce less because the higher costs make it less viable to continue operating at the previous levels of output. Thus, the firm may reduce the quantity of goods supplied at any given price; this reflects a decrease in supply.

In a supply and demand context, a decrease in supply often leads to higher prices in the market, assuming demand remains constant. This chain of reasoning aligns with the principle that when production becomes more expensive, firms are less inclined to supply the same volume at previous price levels.