The market for sweet potatoes consists of 1,000 identical firms. Each firm has a short-run total cost curve of STC = 100 + 100 q + 100q², and a short-run marginal cost curve of SMC=100+200q where q is output. All fixed costs are sunk. What is the equation of the short-run market supply curve?

Question

Quizplus · Accepted Answer

The correct answer is A because the short-run market supply curve is the horizontal summation of the individual firm's short-run supply curves. The individual firm's short-run supply curve is the portion of its marginal cost curve that lies above its shutdown point. The shutdown point is the output level at which the firm's total revenue equals its total variable cost. In this case, the shutdown point is q = 0. Therefore, the individual firm's short-run supply curve is SMC = 100 + 200q for q ≥ 0. The short-run market supply curve is the horizontal summation of these individual firm supply curves, which is Q^s = 5P-500 for P≥100, and Q^s=0 otherwise.

The Market for Sweet Potatoes Consists of 1,000 Identical Firms