Supply Curve from Piecewise Linear Cost Function
Supply Curve from Piecewise Linear Cost Function
This Demonstration shows how to define a supply curve if a marginal cost curve is piecewise and "broken." The problem of the price-taking competitive firm is to define which quantity to produce if the price is set in the range between two edge points, or, to put it differently, which piece of the cost curve to use to define the quantity given the price, ()≤p≤(), where is given. For simplicity, we consider linear cost functions (and that the average cost curve intersects the marginal cost curve at the origin). We show the principal approach to the problem, which can be generalized to arbitrary cost functions with many break points.
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