In a particular market,there are 500 firms.Each firm has a marginal cost of $40 when it produces 200 units of output.What is one point on the market supply curve

Question

Quizplus · Accepted Answer

To find a point on the market supply curve, we need to add up the quantities supplied by each firm at different prices. Since each firm's marginal cost is constant at $40, its supply curve is a horizontal line at a height of $40 until it reaches 200 units, after which it becomes vertical, since the firm is producing as much as it can at that price.

At a price of $40, each firm will supply 200 units, for a total market quantity of 100,000 units (500 firms x 200 units per firm). Therefore, point C, with a quantity of 100,000 and a price of $40, is one point on the market supply curve.

Points A and B are not on the supply curve since point A represents the cost of one firm producing 200 units, while point B has a price of $20,000, which is an unrealistic and extremely high price for the product, and would result in a market quantity of 0. Point D has a quantity of 100,000, but a price of $20,000, which is not consistent with the marginal costs of the firms.

In a Particular Market,there Are 500 Firms