Refer to Figure 14-4. If there are 100 identical firms in this competitive market, what does the market supply curve represent?

• A. The marginal cost curve of a representative firm
• B. The average supply curve of a single firm
• C. The horizontal sum of the individual supply curves of all 100 firms
• D. The demand curve faced by each individual firm

Answer: (C)

Verified step by step guidance

1. Understand that in a perfectly competitive market, each firm has its own individual supply curve, which is typically the portion of its marginal cost (MC) curve above the average variable cost (AVC).
2. Recognize that the market supply curve is derived by aggregating the supply curves of all individual firms in the market.
3. To find the market supply curve, perform a horizontal summation of the quantities supplied by each firm at every possible price level. This means adding up the quantities supplied by all 100 firms at each price.
4. Mathematically, if \(q_i(p)\) is the quantity supplied by firm \(i\) at price \(p\), then the market supply \(Q(p)\) is given by: \[Q(p) = \sum_{i=1}^{100} q_i(p)\]
5. Since all firms are identical, the market supply curve can also be expressed as 100 times the quantity supplied by a single representative firm at each price: \[Q(p) = 100 \times q(p)\]