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CHAPTER 10 THE PARTIAL EQUILIBRIUM COMPETITIVE MODEL The problems in this chapter focus on competitive supply behavior in both the short and long runs. For short-run analysis, students are usually asked to construct the industry supply curve (by summing firms’ marginal cost curves) and then to describe the resulting market equilibrium. The long-run problems (10.5– 10.8), on the other hand, make extensive use of the equilibrium condition P = MC = AC to derive results. In most cases, students are asked to graph their solutions because, I believe, such graphs provide considerable intuition about what is going on. Comments on Problems 10.1 This problem asks students to constructs a marginal cost function from a cubic cost function and then use this to derive a supply curve and a supply-demand equilibrium. The math is rather easy so this is a good starting problem. 10.2 A problem that illustrates “interaction effects.” As industry output expands, the wage for diamond cutters rises, thereby raising costs for all firms. 10.3 This is a simple, though at times tedious, problem that shows that any one firm’s output decision has very little effect on market price. That is shown to be especially true when other firms exhibit an elastic supply response in reaction to any price changes induced by any one firm altering its output. That is, any one firm’s effect on price is moderated by the induced effect on other firms. 10.4 This is a tax-incidence problem. It shows that the less elastic the supply curve, the greater the share of tax paid this is paid by firms (for a given demand curve). Issues of tax incidence are discussed in much greater detail in Chapter 11. 10.5 This is a simple problem that uses only long-run analysis. Once students recognize that the equilibrium price will always be $3.00 per bushel and the typical firm always produces 1,000 bushels, the calculations are trivial. 10.6 A problem that is similar to 10.5, but now introduces the short-run supply curve to examine differences in supply response over the short and long runs. 10.7
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This note was uploaded on 11/06/2009 for the course ECON ECON111 taught by Professor Smith during the Spring '09 term at Punjab Engineering College.

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