TradeLecture15

TradeLecture15 - The Theory of Imperfect Competition...

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The Theory of Imperfect Competition Average and Marginal Costs Average Cost ( AC ) is total cost divided by output. Marginal Cost ( MC ) is the amount it costs the firm to produce one extra unit. • When average costs decline in output, marginal cost is always less than average cost. • Suppose the costs of a firm, C , take the form: C = F + c x Q (6-3) – This is a linear cost function. – The fixed cost in a linear cost function gives rise to economies of scale, because the larger the firm’s output, the less is fixed cost per unit. • The firm’s average costs is given by: AC = C / Q = F / Q + c (6-4) © Ben Zissimos, Vanderbilt University
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The Theory of Imperfect Competition Average Versus Marginal Cost 6 Cost per unit 4 5 Average cost 2 3 Marginal cost 1 0 © Ben Zissimos, Vanderbilt University 2 4 6 8 10 12 14 16 18 20 22 24 Output
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The Theory of perfect Competition Monopolistic Competition Imperfect Competition Oligopoly • Internal economies generate an oligopoly market ructure structure. – There are several firms in the industry, each of which is large enough to affect prices. • Strategic interactions among oligopolists have become important in the international economy. h f i di d i t t i t k i i t – Each firm decides its own actions, taking into account the actions of other firms in the industry.
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This note was uploaded on 05/05/2011 for the course CLAS 146 taught by Professor Solomon during the Spring '11 term at Vanderbilt.

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TradeLecture15 - The Theory of Imperfect Competition...

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