Market supply is the horizontal sum of the individual MC curves above the AVC in a perfectly competitive market.

Question

Quizplus · Accepted Answer

This is because in a perfectly competitive market, firms are price takers and must accept the equilibrium price, which is also the market price. Therefore, each firm's supply curve is perfectly elastic at the market price (i.e. a horizontal line at the market price). Market supply is the sum of all the individual firm's supply curves at each price level, which is also a horizontal line at the market price. Above the AVC, all firms will produce as long as the price exceeds the average variable cost. Therefore, the market supply is the horizontal sum of all individual MC curves above the AVC.

Market Supply Is the Horizontal Sum of the Individual MC