Supply Curve Determination
Cornell Pharmaceutical, Inc., and Penn Medical, Ltd., supply generic drugs to treat a variety of illnesses. A major product for each company is a generic equivalent of an antibiotic used to treat postoperative infections. Proprietary cost and output information for each company reveal the following relations between marginal cost and output:
MCC = $10 + $0.004QC (Cornell)
MCP = $8 + $0.008QP (Penn)
The wholesale market for generic drugs is vigorously price competitive, and neither firm is able to charge a premium for its products. Thus, P = MR in this market.
A. Determine the supply curve for each firm. Express price as a function of quantity and quantity as a function of price. (Hint: Set P = MR = MC to find each firm's supply curve.)
B. Calculate the quantity supplied by each firm at prices of $8, $10, and $12. What is the minimum price necessary for each individual firm to supply output?
C. Assuming these two firms make up the entire industry, determine the industry supply curve when P $10.
D. Determine the industry supply curve when P > $10. To check your answer, calculate quantity at an industry price of $12 and compare your answer with part B.