There are only two price taking firms in a market. Their cost functions are and , where is the output of the -th firm. Market supply is the sum of the two firms' outputs. Then the market supply function is
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1 markMicroeconomicsPerfect competitionShort-run supply of the firm and the industryModerateabout 3 min
DSE 2009 Question 13: Perfect competition
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There are only two price taking firms in a market. Their cost functions are C₁=x₁² and C₂=2x₂², where xᵢ is the output of the i -th firm. Market supply is the sum of the two firms' outputs. Then the market supply function is (A) x=3p/4 (B) x=4p/3 (C) x=p/2 (D) x=2p
Also written as: There are only two price taking firms in a market. Their cost functions are C_1=x_1^2 and C_2=2x_2^2, where x_i is the output of the i -th firm. Market supply is the sum of the two firms' outputs. Then the market supply function is
Perfect competition has come up 115 times in 7 exams since 2006.
What this question tests
This question is on Short-run supply of the firm and the industry, part of Perfect competition in Microeconomics.
The firm's supply curve above the shutdown point and how firm supplies add up to market supply.
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Question from the DSE 2009 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.