Chapter 3: Problem 15

Will supply curves have the same shape in all markets? If not, how will they differ?

Short Answer

Expert verified

In summary, supply curves do not have the same shape in all markets; they differ based on market structure. In perfectly competitive and monopolistic competition markets, supply curves are upward sloping, while in oligopoly and monopoly markets, supply curves are not well-defined and can take various shapes depending on strategic behavior and pricing power.

Step by step solution

1. Understanding Supply Curves

Supply curves represent the relationship between the price of a good or service and the quantity of that good or service that producers are willing and able to supply. In general, as the price of a product increases, producers are willing to supply more of it, which creates a positive relationship between price and quantity supplied.

2. Comparing Supply Curves in Perfectly Competitive Markets

In a perfectly competitive market, there are a large number of producers who produce identical products. Due to the large number of firms, each firm has no influence on the market price and takes it as given. In this case, the supply curve of each firm is upward sloping, reflecting the increasing marginal cost of production, and the market supply curve is the horizontal sum of individual firm supply curves. The market supply curve is also upward sloping, meaning that as the price of a good rises, the quantity supplied in the market increases.

3. Comparing Supply Curves in Monopolistic Competition

In monopolistic competition, there are many firms, each producing a differentiated product. Although firms do have some control over the price due to product differentiation, price competition still plays a role in determining market equilibrium. Similar to the perfectly competitive market, individual firm supply curves are upward sloping, however, the shape may vary depending on factors like production costs and the degree of differentiation. The market supply curve in monopolistic competition is also upward sloping but may have a different shape compared to the perfectly competitive market.

4. Comparing Supply Curves in Oligopoly

In an oligopoly, there are only a few large firms dominating the market. Due to the concentrated nature of the market and interdependence among firms, the supply curve for an individual firm is not well-defined, as each firm bases its production decisions on the actions of its competitors. In such cases, the supply curve may take different shapes depending on the strategic behavior of the firms.

5. Comparing Supply Curves in Monopoly

In a monopoly, there is only one firm that has full control over the supply of a unique product or service. The supply curve is not well-defined in this case as well, since the monopolist determines its production level based on the demand curve and sets the price accordingly. Instead of a supply curve, a monopolist focuses on the marginal cost and marginal revenue curves to determine the optimal production level.

6. Conclusion

In conclusion, supply curves do not have the same shape in all markets. They differ according to the market structure, such as perfectly competitive, monopolistic competition, oligopoly, or monopoly. Supply curves are more clearly defined and upward sloping in perfectly competitive and monopolistic competition markets, while they are not well-defined and may take different shapes in oligopoly and monopoly markets, due to strategic behavior and pricing power.

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