Consider a market with two firms. The following table shows the supply schedules of the two firms: the SS₁ column gives the supply schedule of firm 1 and the SS₂ column gives the supply schedule of firm 2. Compute the market supply schedule.
| Price (Rs) | SS₁ (units) | SS₂ (units) |
|---|---|---|
| 0 | 0 | 0 |
| 1 | 0 | 0 |
| 2 | 0 | 0 |
| 3 | 1 | 1 |
| 4 | 2 | 2 |
| 5 | 3 | 3 |
| 6 | 4 | 4 |
The market supply schedule is as follows:
| Price (Rs) | SS₁ (units) | SS₂ (units) | Market Supply (units) |
|---|---|---|---|
| 0 | 0 | 0 | 0 |
| 1 | 0 | 0 | 0 |
| 2 | 0 | 0 | 0 |
| 3 | 1 | 1 | 2 |
| 4 | 2 | 2 | 4 |
| 5 | 3 | 3 | 6 |
| 6 | 4 | 4 | 8 |
Explanation
According to the textbook, the market supply curve is obtained by taking a horizontal summation of the supply curves of individual firms. The market supply at each price level is calculated as S_m(p) = S₁(p) + S₂(p), which means we simply add the quantities supplied by both firms at each given price.
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 units
Step 3: At Price Rs 1: Market Supply = 0 + 0 = 0 units
Step 4: At Price Rs 2: Market Supply = 0 + 0 = 0 units
Step 5: At Price Rs 3: Market Supply = 1 + 1 = 2 units
Step 6: At Price Rs 4: Market Supply = 2 + 2 = 4 units
Step 7: At Price Rs 5: Market Supply = 3 + 3 = 6 units
Step 8: At Price Rs 6: Market Supply = 4 + 4 = 8 units
Step 9: Present the complete market supply schedule in tabular form.