Lecture_19_Industry_Supply

Lecture_19_Industry_Supply - Lecture 19: Industry Supply...

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Lecture 19: Industry Supply c 2009 Je/rey A. Miron Outline 1. Introduction 2. Short-Run Industry Supply 3. Industry Equilibrium in the Short Run 4. Industry Equilibrium in the Long Run 5. The Long-Run Supply Curve 1 Introduction We now derive the industry supply curve and the industry equilibrium in com- petitive markets. 2 Short-Run Industry Supply n . Let S i ( p ) i ; the industry or market supply curve is therefore 1
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S ( p ) = n X i =1 S i ( p ) which is the sum of the individual supply curves. in the industry at each price, which is the horizontal sum of individual supply curves: 2
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Graph: Industry Supply Curve as Sum of Individual Supply Curves y = 3 x 1 y = 2 x 1 y = 1 : 2 x 1 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 y p S1(p) S2(p) S(p) 3 Industry Equilibrium in the Short Run with the industry demand curve. Graphically, 3
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Graph: Industry Equilibrium y = 10 x y = x 1 0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10 q p q* p* S(p) D(p) This gives an equilibrium price, p , and an equilibrium quantity, q . and solve these algebraically for price and quantity. These solutions, whether using graphs or algebra, do not tell us anything of particular interest by themselves. But, we can use this framework to analyze many important issues. To begin, it is useful to see the implications of the equilibrium for the individual The &rst possibility is one in which a given &rm is making exactly zero pro&ts; it is operating at the point on its MC curve that intersects the minimum of its AC curve: 4
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Graph: A Competitive Firm Earning Zero Pro&ts 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 q p MC AVC AC p* q* AC (y*) = p = c ( y ) y MC curve above the minimum of the AC curve: 5
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Graph: A Competitive Firm Earning Positive Pro&ts 0 1 2 3 4 5 6 7 0 1 2 3 4 5 6 7 q p MC AVC AC p* q* AC Profits (y*) > p > c ( y ) y
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This note was uploaded on 09/16/2009 for the course ECONOMICS 1010A taught by Professor Jeffreya.miron during the Fall '09 term at Harvard.

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Lecture_19_Industry_Supply - Lecture 19: Industry Supply...

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