Assume that there are 100 identical firms that would be willing to sell 10 units each of the same good if the market price were $5 per unit. They have identical individual supply curves that are positively sloped straight lines that go through the origin. 50 of the firms are foreign firms and 50 are domestic firms.
a. Draw a graph of the aggregate supply curve. Indicate on your aggregate supply curve the quantities supplied at the prices of $5, $10 and $20.
b. Assume now that the government imposes a quota limiting each of the 50 foreign firms to a maximum of 5 units each. Draw the new aggregate supply curve that shows the effect of the quota. Indicate on your graph the quantities supplied at the prices of $5, $10 and $20.
c. Determine the equation of the aggregate supply curve in part b.