Supply Curve of the Industry:
The short run supply curve of a
competitive firm is that part of the
marginal cost curve which
lies above the average variable cost. As regards industry supply
curve, it is the horizontal summation of the short run supply
carves of the identical firms constituting an industry.
The industry short run supply curve
is briefly explained with the help of the diagram (15.8) below.
We assume here that prices of inputs
do not change with the change in the size of the firm; However,
when all firms increase or decrease output, the factor prices
rise or fall respectively.
In figure 15.8(a), we assume that at
point P, price or marginal revenue equals marginal cost. The
firm at equilibrium point P. ($4) produces and sells 50 units of
a commodity. If the equilibrium of MR, MC, price occurs at point
K, the firm produces and sells 100 units.
In figure 15.8(b), let us suppose that there are 100
firms in the industry. As all the firms by assumptions, have
identical costs, the industry will be producing 5000 units at a
market price of ($4) and 10000 units at industrial price of
($8). The industry supply curve, therefore, has a positive