Short-run Firm Supply
. Nature's Best, Inc., supplies asparagus to canners located throughout the Mississippi
River valley. Like several grain and commodity markets, the market for asparagus is perfectly competitive.
Marginal cost per ton of asparagus is:
MC = $1.50 + $0.0005Q
Calculate the industry price necessary for the firm to supply 500, 1,000, and 2,000 pounds.
Calculate the quantity supplied by Nature's Best at industry prices of $1.50, $2.25, and $2.75
The marginal cost curve constitutes the supply curve for firms in perfectly competitive
industries. Because P = MR, the price necessary to induce supply of a given amount is found
by setting P = MC. Therefore, at:
Q = 500:
P = MC = $1.50 + $0.0005(500) = $1.75
Q = 1,000:
P = MC = $1.50 + $0.0005(1,000) = $2.00
Q = 2,000:
P = MC = $1.50 + $0.0005(2,000) = $2.50
When quantity is expressed as a function of price, the firm's supply curve can be written:
P = MC = $1.50 + $0.0005Q
0.0005Q = P - 1.50
Q = 2,000P - 3,000
P = $1.50:
Q = 2,000(1.50) - 3,000 = 0
P = $2.25:
Q = 2,000(2.25) - 3,000 = 1,500
P = $2.75:
Q = 2,000(2.75) - 3,000 = 2,500
Short-run Market Supply
. The Fertilizer Supply Co. is a typical distributor in the perfectly competitive
fertilizer supply industry. Its marginal cost of output is:
MC = $250 + $0.05Q
where Q is tons of fertilizer produced per year.
Derive the firm's supply curve, expressing quantity as a function of price.
Derive the industry supply curve if the firm is one of 400 competitors.
Calculate industry supply per year at a market price of $300 per ton.
The perfectly competitive firm will supply output so long as it is profitable to do so. Because
P = MR in perfectly competitive markets, the firm supply curve is given by the relation:
P = MC = $250 + $0.05Q