Chapter 23
NAME
Industry Supply Introduction. To find the industry supply of output, just add up the supply of output coming from each individual firm. Remember to add quantities, not prices. The industry supply curve will have a kink in it where the market price becomes low enough that some firm reduces its quantity supplied to zero. The last three questions of this chapter apply supply and demand analysis to some problems in the economics of illegal activities. In these examples, you will make use of your knowledge of where supply functions come from. 23.0 Warm Up Exercise. Here are some drills for you on finding market supply functions from linear firm supply functions. The trick here is to remember that the market supply function may have kinks in it. For example, if the firm supply functions are s1 (p) = p and s2 (p) = p − 2, then the market supply function is S(p) = p for p ≤ 2 and S(p) = 2p − 2 for p > 2; that is, only the first firm supplies a positive output at prices below $2, and both firms supply output at prices above $2. Now try to construct the market supply function in each of the following cases. (a) s1 (p) = p, s2 (p) = 2p, s3 (p) = 3p.
(b) s1 (p) = 2p, s2 (p) = p − 1.
S(p) = 6p.
S(p) = 2p for p ≤ 1, S(p) =
3p − 1 for p > 1. (c) 200 firms each have a supply function s1 (p) = 2p − 8 and 100 firms each have a supply function s2 (p) = p − 3.
S(p) = 0 for
p < 3, S(p) = 100p − 300 for 3 ≤ p ≤ 4, S(p) = 500p − 1, 900 for p > 4. (d) s1 (p) = 3p − 12, s2 (p) = 2p − 8, s3 (p) = p − 4.
S(p) = 6p − 24
for p > 4. 23.1 (1) Al Deardwarf’s cousin, Zwerg, makes plaster garden gnomes. The technology in the garden gnome business is as follows. You need a gnome mold, plaster, and labor. A gnome mold is a piece of equipment that costs $1,000 and will last exactly one year. After a year, a gnome