Six per page_Week 9_Part II_ECON2101_S1_2010

Six per page_Week - Recap the basic storyline Supply 1 Firm Supply(Ch 22 Supply(Ch 22 2 Industry Supply(Ch 23 Short run supply curve is obtained by

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1 Supply 1. Firm Supply (Ch 22) 2. Industry Supply(Ch 23) Recap the basic storyline ± Short run supply curve is obtained by equating p = MC. Why? ± Producing and selling one more unit fetches $P ± Cost of prodcing one more unit is $MC ± If P > MC, you earn more than what it costs you So you should produce more you. So you should produce more ± If P < MC, you get less than what it costs you. So you should produce less ± This suggests at equilibrium P = MC. WEEK 9-2 ECON2101 S1 2010 2 Recap (contd). ± Two caveats/qualifications ± If p = MC at two points then choose If p MC at two points then choose the point on upward sloping part of MC curve ± Make sure that p > min AVC. Things one should not worry about ± What happens p = MC at more than two points two points. WEEK 9-2 ECON2101 S1 2010 3 Short-Run Supply ± In a short-run the number of firms in the industry is, temporarily, fixed. ± Let n be the number of firms; i = 1, … ,n. ± S i (p) is firm i’s supply function. ± The industry’s shor run supply The industry s short-run supply function is . ) ( ) ( 1 = = n i i p S p S WEEK 9-2 ECON2101 S1 2010 4 Supply From A Competitive Industry p p Firm 1’s Supply Firm 2’s Supply S 1 (p) S 2 (p) p S(p) = S 1 (p) + S 2 (p) WEEK 9-2 ECON2101 S1 2010 5 S(p) S (p) S Industry’s Supply Short-Run Industry Equilibrium ± In a short-run, neither entry nor exit can occur. ± Consequently, in a short-run equilibrium, some firms may earn positive economics profits, others may suffer economic losses, and still others may earn zero economic profit. WEEK 9-2 ECON2101 S1 2010 6
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2 Short-Run Industry Equilibrium Shorrn inds t r Short-run industry supply p s e Market demand Y s e Y Shor run equilibrium price clears the WEEK 9-2 ECON2101 S1 2010 7 Short-run equilibrium price clears the market and is taken as given by each firm. Short-Run Industry Equilibrium AC Firm 1 Firm 2 Firm 3 AC s s AC s MC MC s MC s s p s e * * Π 1 > 0 Π 2 < 0 Π 3 = 0 y 1 y 2 y 3 y 1 y 2 y 3 * Firm 1 wishes ti i Firm 2 wishes t f Firm 3 is id i f f t WEEK 9-2 ECON2101 S1 2010 8 to remain in the industry.
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This note was uploaded on 05/17/2011 for the course ECON 2103 taught by Professor No during the Fall '10 term at DeVry NJ.

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Six per page_Week - Recap the basic storyline Supply 1 Firm Supply(Ch 22 Supply(Ch 22 2 Industry Supply(Ch 23 Short run supply curve is obtained by

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