Question

Practice problem on market supply 5 points Suppose there are 2 firms that produce fertilizer. One firm (H) has high costs. The other firm (L) has low costs. The supply curves for the 2 firms are shown in the graph below. Supply for the high cost firm is labeled "SH" and supply for the low cost firm is labeled "S." Supply of fertilizer 60 50 2 30 E 20 10 50 100 150 200 Quantity (tons) Derive the market supply of fertilizer. Sketch the market supply curve on a new graph. Label axes and important points on the graph

Answer 1

When the price is 10, H supplies 0 and L supplies 40 so market quantity is 40. First coordinate of market supply is (40, 10).

When the price is 20, H supplies 20 and L supplies 80 so market quantity is 100. Second coordinate of market supply is (100, 20).

When the price is 30, H supplies 40 and L supplies 120 so market quantity is 160. Third coordinate of market supply is (160, 30).

When the price is 40, H supplies 60 and L supplies 160 so market quantity is 220. Fourth coordinate of market supply is (220, 40).

Use these points to draw market supply function

Supply of fertilizer Price ($/ton) D(220, 40) C(160, 30). B(100, 20). A (40, 10) 50 150 200 100 Quantity (tons)