Question

Short-Run Market Supply. New England Textiles, Inc., is a medium-sized manufacturer of blue denim that sells in a perfectly competitive market. Given $25,000 in fixed costs, the total cost function for this product is described by TC = $25,000 + $1Q+ $0.000008 Q2 MC = a Tc/aQ = $1 + $0.000016Q where Q is square yards of blue denim produced per month. Assume that MC > AVC at every point along the firm's marginal cost curve, and that total costs include a normal profit. A. Derive the firm's supply curve, expressing quantity as a function of price. B. Derive the market supply curve if New England Textiles is one of 500 competitors. C. Calculate market supply per month at a market price of $2 per square yard.

Answer 1

Firm supply curve is represented by the upward sloping portion of the MC curve.

MC = 1 + 0.000016 Q

A. P= 1 + 0.000016 Q

So, the firm's supply curve is Q = 62500 P- 62500

When Q =0 , P= $1

B. Total firms= 500 competitors

So, the market supply curve is 500Q = 500(62500P - 62500)

500Q = 31250000 P - 31250000

So, Market supply Qm = 31250000 P - 31250000

C. When P= $2 , then Qm = 31250000