Now let’s take a look at the equations for the marginal cost functions that are graphed in Thinking and Problem Solving question 3, and see if we can combine them into one equation for industry-wide marginal cost. This is what the two equations for the graphs in the question look like:
MC1 = 2 + 4q1
MC2 = 7 + 2q2
Can you create an industry marginal cost equation that shows MCTotal as a function of qTotal instead of just q1 or q2?
a. First, solve both equations for q.
b. Now, replace MC1 and MC2 with MCTotal, since Invisible Hand Principle 1 tells us that marginal cost will be equal for all of the firms in the industry.
c. Next, write an equation for qTotal, which is just q1 + q2.
d. Finally, solve the equation for MCTotal. Now you have created an industry marginal cost function from the cost functions of two different firms in the industry.