THE SHORT RUN: MARKET SUPPLY WITH A FIXED NUMBER OF FIRMS

Consider first a market with 1,000 identical firms. For .any given price, each firm supplies a quantity of output so that its marginal cost equals the price, as shown in panel (a) of Figure 6. That is, as long as price is above average variable cost, each firm’s cost curve is its supply curve. The quantity of output supplied to the market equals the sum of, the quantities supplied by each of the 1,000 individual firms,Thus, to derive the market supply curve, we add the quantity supplied by each firm in the market. As panel.

(b) of Figure 6 shows, because the firms are identical, the quantity supplied to the market is 1,000 times the quantity supplied by each firm.

Figure 6 Short-Run Market Supply

 

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