Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 5  Firm Behavior and the Organization of Industry

Chapter 14 of 36  Firms In Competitive Markets

Section 18 of 24

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Figure 6 here

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Figure 6 - Short-Run Market Supply

In the short run, the number of firms in the market is fixed.

As a result

· the market supply curve, panel (b)

· reflects the individual firms' marginal-cost curves of panel (a)

Here, in a market of 1,000 firms

· the quantity of output supplied to the market

· is 1,000 times the quantity of 100 supplied by each firm

…

For any given price (P), each firm supplies 100 units as long as P is above average variable cost.

…

There are two market supply curve cases to consider

· short-run situation: a market with a fixed number of firms

· long-run situation: a market where the number of firms change as firms exit and enter the market

Over short periods of time

· it is difficult for firms to enter and exit

· so the assumption is there are a fixed number of firms 

Over long periods of time, the number of firms adjust to changing market conditions.

… … 

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