WOLFRAM|DEMONSTRATIONS PROJECT

Supply Curve from Piecewise Linear Cost Function

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Set price manually
P
5
Optimal line is P =
4
2
Show and hide elements
supply curve
losses and profits
tooltips on curves
Set price with two indifferent solutions
Show 'broken' cost curve
a
2
b
1
q
0
4
Reset to initial values
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
q
given the price,
C
2
(
q
0
)≤p≤
C
1
(
q
0
)
, where
q
0
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.