Answer to Question #163663 in Microeconomics for Prathiksha

Question

A supplier will only start to supply T shirts when a prize when a price greater than ₹500 per unit is available. He or she will then increase the output by 2 units for every ₹50 per unit increase in price. Write the equation of the supply function.

Answer 1

Let the supplier will start to supply T shirts when a price is ₹500 per unit. He or she will then increase the output by 2 units for every ₹50 per unit increase in price. Then, we can write the supply function as follows:

$$P_s=mQ+b,$$

here, $m$ is the slope of the supply curve.

We can find the slope as follows:

$$m=\dfrac{\Delta P}{\Delta Q}=\dfrac{50}{2}=25.$$

To find coefficient $b$ let's plug into the supply function the quantity supplied 2 and corresponding price ₹550 (₹500+₹50):

$$550=25\cdot2+b,$$ $$b=500.$$

Finally, we can write the equation of the supply function:

$$P_s=25Q+500.$$