Consider a market with two firms. In the following table, columns labelled as SS₁ and SS₂ give the supply schedules of firm 1 and firm 2 respectively. Compute the market supply schedule.
| Price (Rs) | SS₁ (kg) | SS₂ (kg) |
|---|---|---|
| 0 | 0 | 0 |
| 1 | 0 | 0 |
| 2 | 0 | 0 |
| 3 | 1 | 0 |
| 4 | 2 | 0.5 |
| 5 | 3 | 1 |
| 6 | 4 | 1.5 |
| 7 | 5 | 2 |
| 8 | 6 | 2.5 |
The market supply schedule is computed by adding the supply of both firms at each price level.
| Price (Rs) | SS₁ (kg) | SS₂ (kg) | Market Supply (kg) |
|---|---|---|---|
| 0 | 0 | 0 | 0 |
| 1 | 0 | 0 | 0 |
| 2 | 0 | 0 | 0 |
| 3 | 1 | 0 | 1 |
| 4 | 2 | 0.5 | 2.5 |
| 5 | 3 | 1 | 4 |
| 6 | 4 | 1.5 | 5.5 |
| 7 | 5 | 2 | 7 |
| 8 | 6 | 2.5 | 8.5 |
Explanation
According to the textbook, the market supply curve is derived by summing up the supply curves of individual firms. The context states: 'the market supply curve, Sm(p), simply sums up the supply curves of the two firms; in other words Sm(p) = S1(p) + S2(p)'. This is also referred to as 'horizontal summation of the supply curves'. At each price level, we add the quantities supplied by firm 1 and firm 2 to obtain the total market supply.
Solution Steps
Step 1: Understand that market supply is the sum of individual firm supplies at each price level.
Step 2: At Price Rs 0: Market Supply = 0 + 0 = 0 kg
Step 3: At Price Rs 1: Market Supply = 0 + 0 = 0 kg
Step 4: At Price Rs 2: Market Supply = 0 + 0 = 0 kg
Step 5: At Price Rs 3: Market Supply = 1 + 0 = 1 kg
Step 6: At Price Rs 4: Market Supply = 2 + 0.5 = 2.5 kg
Step 7: At Price Rs 5: Market Supply = 3 + 1 = 4 kg
Step 8: At Price Rs 6: Market Supply = 4 + 1.5 = 5.5 kg
Step 9: At Price Rs 7: Market Supply = 5 + 2 = 7 kg
Step 10: At Price Rs 8: Market Supply = 6 + 2.5 = 8.5 kg