{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture4_Competition and Cost

Lecture4_Competition and Cost - Lecture 4 Competition and...

Info icon This preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style 11/5/10 Lecture 4 Competition and Costs Econ 121: Industrial Organization UC Berkeley Fall 2010 Prof. Cristian Santesteban
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
11/5/10 The Shutdown Condition Rearranging gives us the shutdown condition. Shut down if p < cv(q)/q = AVC(q). That is, if the average variable costs are greater than p, the firm would be better off producing zero units of output. This makes sense since it says that the revenues from selling output q
Image of page 2
11/5/10 The Shutdown Condition If the fixed costs are not sunk - that is they can be avoided if the firm shuts down - then the shudown condition becomes, AC(q) > p. If only part of the fixed costs are sunk (e.g., you can break the lease but you have to pay a penalty), then the shutdown condition will be
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Shut-Down Rule: The firm should shut down if the price of the product is less than the average variable cost of production at the profit-maximizing output (if fixed costs are sunk). The Shutdown Condition –
Image of page 4
11/5/10
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
11/5/10
Image of page 6
11/5/10
Image of page 7

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
11/5/10
Image of page 8
11/5/10 Short Run vs Long Run In the long run, all costs are variable; hence, the long run supply function of a firm will be to produce q such that MC(q) = p for all p ≥ AC, which in the long run equals AVC.
Image of page 9

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern