Firm Supply and Demand

Happily -- but not by coincidence! -- all of our examples of profit maximization to date are based on the assumption of given prices. Thus, we already know that the supply curve of a P-Competitive firm is the firm's marginal cost curve.

Thus, marginal cost = price is the same as quantity supplied = quantity demanded for the individual firm.

When marginal cost = price for each firm in the industry, we have quantity supplied = quantity demanded in the industry as a whole.

Here's a picture:

Figure 1

In the figure, the lower case q, s and d refer to output, supply and demand from the point of view of the individual firm, respectively, and the capital S, D, and Q are for the industry as a whole. Cost and supply curves are shown in red and demand curves in green. Price (per unit sold) is the same from all points of view.