4-6-09 - increase in the number of firms in the industry....

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Microeconomics – Class Notes – 4/6/09 Consumer goods Monopolistically competitive Defining “value” : Lower price Bounty Paper Towels (even though it costs more, it’s worth more because its more absorbent so it does more, so thus more value) “Green” – maybe we can sell and differentiate our product along the “green” spectrum because people like this Modeling Perfect Competition # of firms = n Total industry equilibrium quantity = [n*(firm quantity)] Since each firm is almost EXACTLY the same, but the firm with the better technology will win (because their costs will be lower and profits are higher) Perfect competition You have to use the BEST (lowest cost) technology in order to stay competitive
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LONG RUN EQUILIBRIUM Profits are driven to zero in the long run Now if there are profits to be made, and there is easy entry and exit, then there will be an
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Unformatted text preview: increase in the number of firms in the industry. • Thus, the industry supply curve will shift out. This drives price down. o This will continue to occur until profits equal 0 (pi = 0) Thus, the MR curve for the firm shifts down with the new price. I want to make a zero profit on my marginal profit, so I am making a profit on every unit before my last unit produced. • Don’t get confused = you don’t want your marginal profit to be positive it should be zero on the last unit produced Total cost function was on the exam: 25 + q^2 MC = 2Q AC = (25 + q) / q AVC = q Just take the individual firm supply curve and multiply it by the total number of firms in the industry (because, theoretically, they are all the same) to get the total industry supply curve...
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This note was uploaded on 06/03/2009 for the course ECON 200 taught by Professor Nonnenmacher during the Spring '09 term at Allegheny.

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4-6-09 - increase in the number of firms in the industry....

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