Six per page_Week9_Part I_Econ2101_S1_2010

Six per page_Week9_Part I_Econ2101_S1_2010 - Firm Supply...

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1 Supply/Perfect Competition Sh t R L Short Run Long run Firm 1 st 2 nd (Chap,22) (Chap 22) Industry 3 rd (Chap 23) 4 th (Chap 23) Firm Supply ± How does a firm decide how much product to supply? This depends upon the firm’s ² technology (production function) ² market environment (prices) ² competitors’ behaviors (competition, monopoly, oligopoly) WEEK 9-1 ECON2101 S1 2010 2 Market Environments ± Monopoly : Just one seller that determines the quantity supplied and the market-clearing price. [WEEK 10] ± Game Theory and Oligopoly : A few firms, the decisions of each influencing the payoffs of the others influencing the payoffs of the others. [WEEK 11 and 12] ± Pure Competition : Many firms all Many firms, all making the same product. Each firm’s output level is small relative to WEEK 9-1 ECON2101 S1 2010 3 the total [THIS WEEK – WEEK 9] 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 . ± We will examine short run supply decision of a perfectly competitive firm which takes price as given WEEK 9-1 ECON2101 S1 2010 4 Firm’s Short-Run Supply Decision ± Each firm is a profit-maximizer and in a short-run. The subscript S denote short run ± Q: How does each firm choose its output level? ± A: By solving max ( ) ( ). ss yp y c y =− Π y 0 WEEK 9-1 ECON2101 S1 2010 5 First-order condition For y s * > 0, the first- order condition is 0 ) ( Π MC y d s . ) ( = = y p dy s * That is, p MC y = ( ).
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Six per page_Week9_Part I_Econ2101_S1_2010 - Firm Supply...

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