The market supply curve is found by horizontally summing the individual supply curves of all firms in the market. For the two firms in the hypothetical stuffed animal market, at each price, you add the quantities supplied by firm 1 and firm 2 to get the total market quantity supplied. For example, at a price of $1, if firm 1 supplies 1,000 stuffed animals and firm 2 supplies 4,000, the market supply is 5,000 stuffed animals
. Placing the market supply curve on the graph means plotting points where the quantity supplied is the sum of the individual firms' quantities at each price, then connecting these points. This curve will lie above and to the right of the individual supply curves, reflecting the total quantity supplied at each price. If a third supplier enters the market, holding all else constant, the market supply curve shifts to the right. This is because the third firm adds additional quantity supplied at each price, increasing the total market supply. The entry of the third firm means more stuffed animals are available at every price level, which typically leads to a lower equilibrium price or higher quantity sold in the market, depending on demand conditions
. In summary:
- The market supply curve is the horizontal sum of the individual supply curves of all firms.
- For two firms, sum their quantities at each price to get the market supply.
- Adding a third firm shifts the market supply curve rightward, increasing total supply at every price.
This reflects standard microeconomic principles of supply in competitive markets
