The short-run market supply curve isQuestion 1Select one:a.the horizontal summation of each firm's short-run supply curve.b.the horizontal summation of each firm's short-run average cost curve.c.the vertical summation of each firm's short-run average cost curve.d.the vertical summation of each firm's short-run supply curve.
Question
The short-run market supply curve isQuestion 1Select one:a.the horizontal summation of each firm's short-run supply curve.b.the horizontal summation of each firm's short-run average cost curve.c.the vertical summation of each firm's short-run average cost curve.d.the vertical summation of each firm's short-run supply curve.
Solution
The correct answer is d. the vertical summation of each firm's short-run supply curve.
Here's why:
The market supply curve is derived by summing the quantities supplied by all firms in the market at each price, hence it involves an operation of vertical summation.
In the short run, each firm's supply curve is typically upward sloping, meaning that the firm will supply more quantity as the price increases. Therefore, to get the total quantity supplied in the market at each price, we need to add up (or vertically sum) the quantities supplied by each firm at that price. This gives us the market supply curve.
The other options involve either horizontal summation or using the average cost curve, which are not correct. The average cost curve shows the cost per unit of output, not the quantity supplied, so it cannot be used to derive the supply curve. And horizontal summation would involve adding up prices, not quantities, which is not how the market supply curve is derived.
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