SUMMING ALL FIRMS’ SUPPLY CURVES TO GET MARKET SUPPLY
Suppose we are dealing with a, competitive market for oil. At a given price, firm A will bring a given quantity of oil to market, firm B will bring another quantity as will firms C, D, and so on. In each case, the quantity supplied will be determined by each firm’s marginal costs. The total quantity l trough to market at a given price will be the sum of the individual quantities that all firms supply at that price. I This reasoning leads to the following relationship between individual and market supplies:
Recall that the DD market demand curve is similarly obtained , by horizontal summation of individual dd demand curves.
The market supply curve for a good is obtained by adding horizontally the supply curves of all the individual producers of that good.
Figure 8-4 illustrates this for two firms. To get the industry’s supply curve SS, add horizontally, at the same price, all firms’ supply curves. At a price of $40, firm A will supply 4000 units ‘while firm B will supply 11,000 units. Therefore, the industry supply curve, shown in Figure 8-4(i:), adds the two supplies together and finds total industry supply of 15,000 units at a price of $40. If there are 2 million rather than 2 firms, we would still derive industry output by adding all the 2 million individual-firm quantities at the going price. Horizontal addition of output at each pric gives us the industry supply curve.
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