nlecture12 - competitive - slides

nlecture12 - competitive - slides - 2/17/2009 Topic 6:...

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2/17/2009 1 Topic 6: Competitive Markets (1) USC Marshal Equilibrium and efficiency of competitive markets Competitive markets • What makes a market “competitive” – “many” buyers – “many” sellers A perfectly competitive market Each participant takes the price as given USC Marshal • No transaction costs • Homogeneous product • Free entry –Everybody has access to the same production technology Competitive supply Examples of perfectly competitive markets: – Roughly holds: • Most agricultural products (wheat, corn,…) • Steel, aluminium,… • Stock market? USC Marshal •eBay?
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2/17/2009 2 Competitive markets Aggregate (market) demand: – Horizontal sum of individual demands P P P USC Marshal QQ Q Helen Tom Market P Q H Q M Q T Q H Q T Competitive markets Aggregate (market) supply: – The horizontal sum of individual supply curves P P P USC Marshal Q Helen Tom Market Competitive markets Short-run versus long-run market supply: – Short-run: capital stock is fixed and no entry or exit of firms is possible – The firm short-run supply curve is the marginal cost curve above the average variable cost curve USC Marshal – The market short-run supply curve is the horizontal sum of the firm short-run supply curves – Because all individual supply curves are upward- sloping and no entry/exit is possible in the short- run, the industry supply curve slopes up as well
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2/17/2009 3 Competitive markets Short-run versus long-run market supply: – Long-run: capital stock is flexible and the firms are able to enter and exit the market Free entry: everybody has access to the technology used in production USC Marshal • An infinite number of potential entrants • If there are economic profits to be earned, new firms will enter – Individual long-run supply = MC above LRAC Competitive supply Industry supply in the long-run: – The industry supply curve is then the horizontal
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This note was uploaded on 04/07/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

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nlecture12 - competitive - slides - 2/17/2009 Topic 6:...

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