l19 supply function, entry and market structure. today: partial equilibrium model (one industry) ...
DESCRIPTION
Producer: Cost curves pallTRANSCRIPT
![Page 1: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/1.jpg)
L19
Supply function, Entry and market structure
![Page 2: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/2.jpg)
Today: Partial equilibrium model (one industry)
Producers with cost functionsQuestions - Equilibrium with N firms- Free entry: How many firms (N)?
( ) 12D p p
![Page 3: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/3.jpg)
Producer: Cost curves2( )C y y
pall
$1F
ATC
MES MESy ATC
MC
TC
![Page 4: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/4.jpg)
Optimal supply (price takers)2( )C y y
pall
$1F
( )
p
y pp
![Page 5: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/5.jpg)
Industry supply (N firms) Individual supply
Aggregate supply S(p)?
( )
p
y pp
( )
p
S pp
![Page 6: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/6.jpg)
Equilibrium with N firms Demand for a good
There are N identical firms in the industry Questions:
1. Equilibrium price (Market clearing)2. Individual and aggregate production?3. Profits (positive? zero?)4. Should we expect entry?
( ) 12D p p
![Page 7: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/7.jpg)
Equilibrium with N firms1 ,2
y p ( ) 12D p p 4N
*
*
* *
*
( ) ( )
p
y
D p S p
![Page 8: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/8.jpg)
Assume1. No licensing2. No patents3. No any other entry barrier
Firms - enter when positive profit- leave when negative profit
No entry or exit as long as- profit equal to zero
Free Entry (Marshall)
![Page 9: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/9.jpg)
No entry condition
Number of firms
Equilibrium with free entry
pall
( ) 12D p p ( , )2NS p N N y p
?N
![Page 10: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/10.jpg)
Fixed cost and entry
pall
( ) 12D p p
![Page 11: L19 Supply function, Entry and market structure. Today: Partial equilibrium model (one industry) Producers with cost functions Questions -Equilibrium](https://reader035.vdocuments.us/reader035/viewer/2022062413/5a4d1b497f8b9ab0599a4c2f/html5/thumbnails/11.jpg)
Market structureMarket structures categorized as
Conceptual problem when N<10 : - price taking controversial- need for a better model (market power)- monopoly, oligopoly
pall
N 1 2 3-10 10-…
Name