The industry’s supply curve is the horizontal sum of the supply curves
of each of the firms in the industry. At a price of $3, Firm A would
supply 4 units and Firm B would supply 3 units. Together, as shown in
part (iii), they would supply 7 units. If there are hundreds of firms, the
process is the same. In this example, because Firm B does not enter the
market at prices below $2, the supply curve is identical to up to
the price $2 and is the horizontal sum of and above $2.
Each firm’s marginal cost curve shows how much that firm will supply at
each given market price, and the industry supply curve shows what all
firms together will supply. Notice in Figure 9-6 the “kink” in the industry
supply curve, which occurs at the price of $2; at any lower price the
second firm chooses not to produce any output.
This supply curve, based on the short-run marginal cost curves of all the
firms in the industry, is the industry’s supply curve that we first
encountered in Chapter 3. We have now established the profit-
maximizing behaviour of individual firms that lies behind that curve. It is
sometimes called a short-run supply curve because it is based on the short-
run, profit-maximizing behaviour of all the firms in the industry.
SA+B SA
SA SB