Econ 281 Chapter9b - Thus far we have seen that the...

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1 Thus far we have seen that the individual firm’s short run supply curve comes from their marginal cost curve. Definition: The market supply at any price is the sum of the quantities each firm supplies at that price. The short run market supply curve is the HORIZONTAL sum of the individual firm supply curves. (Just as market demand is the HORIZONTAL sum of individual demand curves)
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2 Example:   From Short Run Firm Supply Curve to Short Run Market Supply Curve Q (m units/yr) q (units/yr) $/unit $/unit 300 400 500 0 0 30 24 22 20 1.2 mill Individual supply curves per firm. 1000 firms of each type SMC 3 SMC 2 SMC 1 Market supply Typical firm: Market:
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3 Definition:   A short run perfectly competitive  equilibrium occurs when the market quantity  demanded equals the market quantity supplied. Σ n i=1  q s (P) = Q d (P) Q s (P)= Q d (P) and q s (P) is determined by the firm's  individual profit maximization condition.
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4 Typical firm: Market: Example:   Short Run Perfectly Competitive Equilibrium           SMC SAC AVC P s P* Demand Supply $/unit $/unit Q* q* Units/yr m. units/yr
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