In a competitive market with only two firms, each firm's individual supply curve is shown on a graph. What does the horizontal sum of these two supply curves represent?

• A. The average cost curve
• B. The market demand curve
• C. The marginal revenue curve
• D. The market supply curve

Answer: (D)

Verified step by step guidance

1. Understand that in a competitive market, the market supply curve is derived by aggregating the supply curves of all individual firms in the market.
2. Recognize that each firm's supply curve shows the quantity of goods that firm is willing to supply at different prices.
3. To find the market supply curve, perform a horizontal summation of the individual supply curves, which means adding the quantities supplied by each firm at every given price level.
4. Mathematically, if firm 1's supply at price \(P\) is \(Q_1(P)\) and firm 2's supply at price \(P\) is \(Q_2(P)\), then the market supply \(Q_{market}(P)\) is given by: \[Q_{market}(P) = Q_1(P) + Q_2(P)\]
5. This horizontal sum represents the total quantity supplied by all firms in the market at each price, which is exactly the market supply curve.