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Lecture13 - Firm Supply Market Structure Perfect...

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Firm Supply: Market Structure & Perfect Competition
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Firm Supply How does a firm decide how much to supply at a given price? This depends upon the firm’s goals; technology; market environment; and competitors’ behaviour.
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Market Environment Are there many other firms? How do other firms’ decisions effect the firm’s payoffs?
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Market Environment Monopoly : Just one seller that determines the quantity supplied/the market-clearing price. Oligopoly : A very small number of firms, the decision of each influencing the payoffs of the other firms.
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Market Environment Dominant Firm : Many firms, but one much larger than the rest. The large firm’s decisions affect the payoffs of each small firm. Decisions by any one small firm do not noticeably effect the payoffs of any other firm.
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Market Environment Monopolistic Competition : Many firms each making a slightly different product. Each firm’s output level is small relative to the total. Perfect Competition : Many firms, all making the same product. Each firm’s output level is very small relative to the total output level.
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Perfect Competition Assumptions There are many buyers and sellers, each firm is a price-taker Homogeneous product Freedom of entry and exit Perfect information
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Perfect Competition What is the demand curve faced by the firm?
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Perfect Competition Q P Market Supply Market Demand p e
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Perfect Competition Q P Market Supply p e p’ At a price of p’, zero is demanded from the firm.
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