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Unformatted text preview: Chapter 22 - Firm Supply 1. Firms face two sorts of constraints (a) technological constraints - summarized by production function (b) economic constraints - summarized by cost function (c) market constraint - how will consumers and other firms react to a given firm’s choice (how much to produce and what price to charge)? 2. Pure competition (a) formally - takes market price as given, outside of any particular firms control (b) example: many small price takers (c) demand curve facing a competitive firm (see figure 22.1. in the textbook) 3. Supply decision of competitive firm (a) max y py- c ( y ) (b) first-order condition: p = c ′ ( y ) (c) marginal revenue (in the competitive case, price) equals marginal cost deter- mines supply as function of price (d) second-order condition:- c ′′ ( y ) ≤ 0, or c ′ ( y ) ≥ (e) only upward-sloping part of marginal cost curve matters (f) is it profitable to operate at all?...
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- Summer '10
- Economics, producer, marginal cost curve