lec07 - COMPETITION AND EFFICIENCY P = MC MWTP = MC Optimal...

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1 1 COMPETITION AND EFFICIENCY 2 COMPETITION AND EFFICIENCY P = MC MWTP = MC Optimal Output 7 Other benefits: Profit = 0 No transfer from consumers to producers. Producers paid their costs and no more. P = AC People pay the cost of the good. P = min AC People pay the lowest possible cost. No waste. New technologies are adopted. 8 Three important distinctions: Firm d compared to market D Supply curve in stage 2 equilibrium When competition is feasible 10 Firm demand vs. Market demand: P* q* MC D Firm Market Q* P* d d for firm’s price changing given other firms charge P*. D for all firms’ prices changing together. 11 Firm demand vs. Market demand: P* q* MC D Firm Market Q* P* d Homogenous product gives flat d, even with few firms.
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2 13 But what if firms colluded? P* q* MC D/N Firm Market Q* P* d Collusion is infeasible with many firms. So firm uses d. D 14 Homog prod Many firms Free entry/exit Flat d Firm uses d Profit=0, P=AC P=MC P=minAC 16 Market supply curves in competitive industry: 1. Supply curves with fixed number of firms.
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lec07 - COMPETITION AND EFFICIENCY P = MC MWTP = MC Optimal...

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