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Target Exam

CUET

Subject

Economics

Chapter

Micro Economics: Theory of Firms under Perfect Competition

Question:

Firm 1 will not produce anything if the market price is less than p1 while firm 2 will not produce anything if the market price is less than p2. For a market price greater than or equal to p1 but strictly less than p2, the market supply curve (Assume also that p2 is greater than p1) __________.

Options:

is the difference of supply curve of firm 1 and firm 2

coincides with the supply curve of firm 2

coincides with the supply curve of firm 1

none of above

Correct Answer:

coincides with the supply curve of firm 1

Explanation:

The correct answer is Option 3: coincides with the supply curve of firm 1

Here's how to determine the market supply curve:

  1. Understand the Conditions:

    • Firm 1 produces if the price (p) >= p1.
    • Firm 2 produces if the price (p) >= p2.
    • We are considering the price range p1 <= p < p2.

  2. Analyze the Production:

    • Since p >= p1, Firm 1 will produce.
    • Since p < p2, Firm 2 will not produce.

  3. Determine the Market Supply:

    • The market supply will be solely determined by Firm 1's supply, as Firm 2 will not produce in this price range.

Therefore, the market supply curve coincides with the supply curve of Firm 1.

The correct answer is ☀ coincides with the supply curve of firm 1.

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