Varian_Chapter22_Firm_Supply

Varian_Chapter22_Firm_Supply - Chapter Twenty-Two Firm...

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Chapter Twenty-Two Firm Supply
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Firm Supply ± How does a firm decide how much product to supply? This depends upon the firm’s z technology z market environment z goals z competitors’ behaviors
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Market Environments ± Are there many other firms, or just a few? ± Do other firms’ decisions affect our firm’s payoffs? ± Is trading anonymous, in a market? Or are trades arranged with separate buyers by middlemen?
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Market Environments ± Monopoly : Just one seller that determines the quantity supplied and the market-clearing price. ± Oligopoly : A few firms, the decisions of each influencing the payoffs of the others.
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Market Environments ± 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 affect the payoffs of any other firm.
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Market Environments ± Monopolistic Competition : Many firms each making a slightly different product. Each firm’s output level is small relative to the total. ± Pure Competition : Many firms, all making the same product. Each firm’s output level is small relative to the total.
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Market Environments ± Later chapters examine monopoly, oligopoly, and the dominant firm. ± This chapter explores only pure competition.
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Pure Competition ± A firm in a perfectly competitive market knows it has no influence over the market price for its product. The firm is a market price-taker . ± The firm is free to vary its own price.
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Pure Competition ± If the firm sets its own price above the market price then the quantity demanded from the firm is zero. ± If the firm sets its own price below the market price then the quantity demanded from the firm is the entire market quantity-demanded.
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Pure Competition ± So what is the demand curve faced by the individual firm?
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Pure Competition Y $/output unit Market Supply Market Demand p e
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Pure Competition y $/output unit Market Supply p e p’ At a price of p’, zero is demanded from the firm. Market Demand
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Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand
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Pure Competition ± So the demand curve faced by the individual firm is . ..
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Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand
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Pure Competition Y $/output unit p e p’ p” Market Demand
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Smallness ± What does it mean to say that an individual firm is “small relative to the industry”?
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Smallness $/output unit y Firm’s MC The individual firm’s technology causes it always to supply only a small part of the total quantity demanded at the market price.
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Varian_Chapter22_Firm_Supply - Chapter Twenty-Two Firm...

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