In The classical marketplace – demand and supply it was demonstrated that individual demands can be aggregated into an industry demand by summing them horizontally. The industry supply is obtained in exactly the same manner—by summing the firms’ supply quantities across all firms in the industry.
To illustrate, imagine we have many firms, possibly operating at different scales of output and therefore having different short-run MC curves. The MC curves of two of these firms are
illustrated in Figure 9.3. The MC
of A is below the MC of B; therefore, B likely has a smaller scale of plant than A. Consider first the supply decisions in the price range 
to 
. At any price between these limits, only firm A will supply output – firm B does not cover its AVC in this price range. Therefore,
the joint contribution to industry supply of firms A and B is given by the MC curve of firm A. But once a price of 
is attained, firm B is now willing to supply. The 
schedule is the horizontal addition of their supply quantities. Adding the supplies of every firm in the industry in this way
yields the industry supply.
At any price below 
production is unprofitable and supply is
therefore zero for both firms. At prices between 
and 
firm A is willing to supply, but not firm B. Consequently the market supply
comes only from A. At prices above 
both firms are willing to
supply. Therefore the market supply is the horizontal sum of each firm’s supply.
Industry supply (short run) in perfect competition
is the horizontal sum of all firms’ supply curves.
Short run equilibrium in perfect competition
occurs when each firm maximizes profit by producing a quantity where P = MC.
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