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Thus, under perfect competition, lateral summation of that part of short run marginal cost curves of the firms which lie above the average variable cost constitutes the supply curve of the industry. We get industry’s supply curve by joining points E and E 1. Point E shows that at OP price firm’s supply is OM and an industry’s total supply is 100 × M = 100M.Īt OP 1 price, firm’s supply is OM1 and industry’s supply is 100M). These quantities will be called supply or output of industry. Similarly at OP 1 price, all the firms of industry are producing 100 xM 1 =100M 1 quantity of output. At OP price, supply of industry is 100 x M = 100M. It is because all firms have identical costs. Here, we have assumed that different firms in the industry are producing identical products.Įach firm at OP price is producing OM output. That way, supply curve of an industry is a lateral summation of all firms. Supply curve can be divided into two parts as:Īn industry is a blend of firms producing homogeneous goods. The concept of supply curve applies only under the conditions of perfect competition. In other words, supply curve shows the quantities that a seller is willing to sell at different prices.Īccording to Dorfman, “Supply curve is that curve which indicates various quantities supplied by the firm at different prices”. Supply curve indicates the relationship between price and quantity supplied.