The market supply curve depicts the output levels (plotted on the x-axis) that enterprises in the marketplace manufacture on average, corresponding to distinct values of the market cost price. How is the market supply curve derived? Let us understand a market with n enterprises: enterprise 1, enterprise 2, enterprise 3, and so on.
Let us assume that the market cost price is fixed at q. Then, the output manufactured by the n enterprises on average is [supply of enterprise 1 at price q] + [supply of enterprise 2 at price q] + [supply of enterprise N at price q]. In other words, the market supply at price q is the aggregate of the supplies of individual enterprises at that cost price.
Now, let us prepare the market supply curve geometrically with just two enterprises in the marketplace: enterprise 1 and enterprise 2. The two enterprises have distinct cost substructures. Enterprise 1 will not manufacture anything if the market cost price is less than q1, while enterprise 2 will not manufacture anything if the market cost price is less than q2. Presume that q2 is greater than q1.
It should be noted that the market supply curve is derived for a fixed number of enterprises in the marketplace. As the number of enterprises changes, the market supply curve shifts.
This was the concept of the market supply curve. To learn more, stay tuned to our website.