A competitive market is made up of 100 identical firms Each

A competitive market is made up of 100 identical firms. Each firm has a short-run marginal cost function as follows: MC = 5 + 0.5q, where q represents units of output per unit of time. The average variable cost curve of the firm intersects the marginal cost curve at a point corresponding to a price of 10. a) Determine the minimum price at which an individual firm will supply a positive amount to this market b) Determine the market short-run supply curve.

Solution

The market supply curve is the horizontal summation of the individual firms\' MC curves above the intersection with the respective average variable cost curves. We must express the quantity in terms of MC or:

Q = 2MC - 10.

                                Now add the 100 short-run supply curves together:

Q₁ = 2MC - 10

Q₂ = 2MC - 10

.            .         .

.            .         .

.            .         .            

Q₁₀₀ = 2MC - 10

Q=200MC-1000

Short run supply curve:- Q=200MC-1000