Producer Willingness to Sell (Cost) Dell 750 Acer 1000 HP 1500 Apple 1750 Table 6: Willingness to Sell Laptops Price Quantity Supplied P < 750 0 750 ≤ P < 1000 1 1000 ≤ P < 1500 2 1500 ≤ P < 1750 3 P ≥ 1750 4 Table 7: Supply Schedule for Laptops How many of these firms will actually sell a laptop? Well, that depends on the price. Suppose the price is $749.99 or below. Then no one will sell a laptop, because the price is below every seller’s cost. In other words, the quantity supply at any price below $750 is zero. Suppose the price is $1750 or above - then every firm will sell it, since the price is above every firm’s cost. In other words, the quantitysupplied at the price of $1750 or above is 4. If this sounds familiar, this is analogous 10
Price Quantity Supplied P < 750 0 750 ≤ P < 1000 1 1000 ≤ P < 1500 2 1500 ≤ P < 1750 3 P ≥ 1750 4 Table 8: Supply Schedule for Laptops Price Quantity 1 2 3 4 5 6 0 500 1000 1500 2000 2500 Q S Apple’s cost Dell’s cost Acer’s cost HP’s cost Table 9: Supply Curve for Laptops to how we used the willingness to buy to derive the demand schedule and demand curve. Likewise, we can construct a supply curve if we know each firm’s cost. For any price below $750, the quantity supplied is zero; and above $1750, the quantity sold is 4. So we can construct a table, as in ?? to show this supply schedule for laptops. For what range of prices is the quantity supplied equal to one? From Table ?? , we can see that when the price is above $750 and below $1000, then the quantity sold is one (only Dell). When is the quantity sold equal to 2? When the price is above $1000 and below $1500, only Dell and Acer are willing to supply laptops. Notice that since we’ve arranged Table ?? in increasing order of willingness to pay, we can simply move down the table as the price increases to add to the quantity supply. This is because the person with lowest cost obviously still wants to sell the good at any higher prices. Continuing, we can see that the price needs to be above $1500 and below $1750 for the quantity supplied to equal 3. How do we draw the supply curve for this schedule? We’ll use the same procedure we used to draw the demand curve. If the price is below $750, then we know that the quantity supplied is zero, so this corresponds to a vertical line at the x -coordinate of zero, starting at any price below $750. We know that the quantity supplied is 1 when the price is between 750 and 1000, so corresponds to a vertical line at the x -coordinate of 1, at a height between 750 and 1000. And so on . . . Connecting these lines, we can see that the supply curve is a step function as in Figure ?? because we only have 4 producers. Notice that each step of this supply curve - i.e., horizontal segment - corresponds to one seller’s willingness to sell. The bottom step at a price of $750 is Dell, the second step at $1000 is Acer, and so on . . . As we add more and more producers to a market, this supply curve becomes smoother, which is why we use a smooth line to represent the supply curve.
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