Question

Suppose there are 20 low-cost bakeries that can produce bagels in St. Catharines, each of which has the supply function qiu-cost = 20P – 10. There are 10 high-cost bakeries, each of which has the supply function qhigh-cost = 20P – 20. Calculate and graph the individual and market supply curves.

Answer 1

We are given the following supply function for low cost bakery:

Glow cost = 20 P – 10

This can be rearranged as:

P = Now cost + 10 20

= P = low cost +0.5 20

Now we can substitute different value of to find out the range of prices for which this quantity will be demanded:

Flow cost

Flow cost	P
0	0.5
20	1.5
40	2.5
60	3.5
80	4.5
100	5.5
120	6.5
140	7.5
160	8.5
180	9.5
200	10.5

With this we can plot the individual supply curve of a low cost bakery:With this we can plot the individual supply curve of a low cost bakery:

Individual Supply curve 200, 10.5 180,9.5 160,8.5 140, 7.5 120,6.5 100,5.5 80,4.5 60,3.5 40,2.5 20,1.5 0 0,0.5 50 100 150 200 Low cost

Similarly, We are given the following supply function for high cost bakery:

Thigh cost = 20P - 20

This can be rearranged as:

P - Thigh cost + 20 20

P=Thigh cost 20

Now we can substitute different value of to find out the range of prices for which this quantity will be demanded:

Thigh cost

qHigh cost	P
0	1
20	2
40	3
60	4
80	5
100	6
120	7
140	8
160	9
180	10
200	11

Individual Supply curve 200, 11 180, 10 160,9 140,8 120,7 100,6 80,5 60,4 40,3 20,2 50 100 200 250 150 High cost

Now these were individual supply curves we are told that there are 20 low cost and 10 high cost firms. We will simply multiply the quantity by these numbers to get the market supply at these prices. This method is called the horizontal summation method.

So low cost market supply is as follows:

P	Individual supply qLow cost	Calculation	Market qLow cost
0.5	0	0X 20 =	0
1.5	20	20X 20 =	400
2.5	40	40X 20 =	800
3.5	60	60X 20 =	1200
4.5	80	80X 20 =	1600
5.5	100	100X 20 =	2000
6.5	120	120X 20 =	2400
7.5	140	140X 20 =	2800
8.5	160	160X 20 =	3200
9.5	180	180X 20 =	3600
10.5	200	200X 20 =	4000

Market Supply curve 4000, 10.5 3600,9.5 3200, 8.5 2800, 7.5 2400, 6.5 2000,5.5 1600, 4.5 1200, 3.5 800, 2.5 400, 1.5 0 0.0.5 0 500 1000 1500 2000 2500 3000 3500 4000 4500 Market low cost

P	Individual supply qHigh cost	Calculation	Market qHigh cost
1	0	0X 10 =	0
2	20	20X 10 =	200
3	40	40X 10 =	400
4	60	60X 10 =	600
5	80	80X 10 =	800
6	100	100X 10 =	1000
7	120	120X 10 =	1200
8	140	140X 10 =	1400
9	160	160X 10 =	1600
10	180	180X 10 =	1800
11	200	200X 10 =	2000

Market Supply curve 2000, 11 1800, 10 1600,9 1400,8 1200,7 1000,6 800,5 600,4 400,3 200,2 0,1 500 1000 1500 2000 2500 Market High cost