Consider a market with two firms. In the following table, columns labelled as $SS_1$ and $SS_2$ give the supply schedules of firm 1 and firm 2 respectively. Compute the market supply schedule.

| Price (Rs) | SS1 (kg) | SS2 (kg) |
|---|---|---|
| 0 | 0 | 0 |
| 1 | 0 | 0 |
| 2 | 0

Question

Consider a market with two firms. In the following table, columns labelled as $SS_1$ and $SS_2$ give the supply schedules of firm 1 and firm 2 respectively. Compute the market supply schedule.

| Price (Rs) | SS1 (kg) | SS2 (kg) |
|---|---|---|
| 0 | 0 | 0 |
| 1 | 0 | 0 |
| 2 | 0 | 0 |
| 3 | 1 | 0 |
| 4 | 2 | 0.5 |
| 5 | 3 | 1 |
| 6 | 4 | 1.5 |
| 7 | 5 | 2 |
| 8 | 6 | 2.5 |

Accepted Answer

> [!TLDR]
> Market supply is the total quantity of a good that all firms in a market are willing to sell at each price, calculated by horizontally summing the individual supply schedules of all firms.

Understanding market supply begins with understanding individual firm supply. Each firm decides how much of a good to produce and offer for sale based on its production costs and the prevailing market price. The supply schedule of a firm shows the different quantities it is willing to supply at various possible prices.

When we consider an entire market, the market supply represents the aggregate of all individual firms' supply decisions. It tells us the total quantity of a good that all producers collectively are willing to offer for sale at each possible price. The economic intuition here is straightforward: if there are multiple firms producing the same good, the total amount available in the market at any given price is simply the sum of what each individual firm is willing to supply at that price.

To compute the market supply schedule from individual firm supply schedules, we use a process called horizontal summation. This means that for every given price level, we add up the quantities supplied by each individual firm.

> [!FORMULA]
> Market Supply ($SS_M$) at a given price $P$ is the sum of the quantities supplied by each individual firm at that price:
> $SS_M(P) = SS_1(P) + SS_2(P) + \dots + SS_n(P)$
> where $SS_i(P)$ is the quantity supplied by firm $i$ at price $P$.

Let's apply this to the given data for two firms:

1.  **At Price Rs 0:**
    $SS_M(0) = SS_1(0) + SS_2(0) = 0 + 0 = 0$ kg

2.  **At Price Rs 1:**
    $SS_M(1) = SS_1(1) + SS_2(1) = 0 + 0 = 0$ kg

3.  **At Price Rs 2:** …

Price (₹)	A's demand (units)	B's demand (units)	Market demand (units)
10	5	3	8
8	8	6	14
6	12	9	21
4	17	13	30

Price (Rs)	SS1 (kg)	SS2 (kg)	Market Supply ( $SS_1 + SS_2$ ) (kg)
0	0	0	$0 + 0 = 0$
1	0	0	$0 + 0 = 0$
2	0	0	$0 + 0 = 0$
3	1	0	$1 + 0 = 1$
4	2	0.5	$2 + 0.5 = 2.5$

Concept understanding — Market Demand Aggregation

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