The bicycle industry y is made up of 100 firms with the long-run cost curve c(y)= 2 + (y₂/2)and 60 firms with the long-run cost curve c(y)= y₂/10.No new firms can enter the industry.What is the long-run industry supply curve at prices greater than $2?

Question

Quizplus · Accepted Answer

The long-run industry supply curve is the horizontal sum of the long-run supply curves of the individual firms. At prices greater than $2, all 100 firms with the long-run cost curve c(y)= 2 + (y₂/2) will produce output. The long-run supply curve of these firms is y = 200p. The 60 firms with the long-run cost curve c(y)= y₂/10 will not produce any output at prices greater than $2, since their minimum average variable cost is $2. Therefore, the long-run industry supply curve at prices greater than $2 is y = 200p.

The Bicycle Industry Y Is Made Up of 100 Firms