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’s supply curve, it is the horizontal summation of the short run supply curves of all the identical firms constituting an industry.
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.
The industry’s short run supply curve is briefly explained with the help of the diagram (15.8, a and b) below:
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’s supply curve, therefore, has a positive slope.