Question

Suppose the supply of firm 1 is y₁(p)=2p and the supply of firm 2 is y₂(p)=p-2. What is the firms' joint supply at price p=1?

Group of answer choices

1

4

2

neither one is correct

3

Answer 1

Answer :

Firm 1's supply function is :

y1(p) = 2p

At price p = 1, firm 1's supply is therefore :

y1(1) = 2 * 1 = 2

Firm 2's supply function is :

y2(p) = p - 2

At price p = 1, firm 2's supply is therefore :

y2(1) = 1 - 2 = - 1

But supply cannot be negative thus we take the second firm's supply to be 0 at price p = 1

Note : According to the supply function of the second firm [ y2(p) = p - 2], the second firm will only supply anything when price will be more than 2, below that price it doesn't supply anything.

Thus firms' joint supply at price p = 1 is therefore :

y1(1) + y2(1) = 2 + 0 = 2

Answer : Option c) 2