09.22.08 - ECONOMICS 1 Professor Kenneth Train 9/22/08...

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Professor Kenneth Train 9/22/08 Lecture 7 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. ANNOUNCEMENTS Problem Set Two due first section meeting in the week of Sept. 29. Answers from the first problem set will be posted on the website later today. LECTURE COMPETITION & EFFICIENCY Today I want to talk more about competition and then go into some interesting aspects of it. I will look at when our government should induce competition and when it shouldn’t. Concepts from Last Lecture Results of Competition - P = MC - MWTP = MC - Optimal Output Remember that last lecture we said you should always produce an extra unit of the good if there is a person willing to buy it. This means that whenever MWTP > MC, create more; stop only when they are equal. Competition allows that because it adjusts their intuitions towards the same thing. Firms produce until MC = P. Eventually no matter what MC curves look like, the MC for every firm’s last unit is the same and equals price. On the demand side, whenever a person has a MWTP greater than P, they are going to buy it! That’s definitional. That means we get exactly what we wanted. This will continue until P > MWTP, giving us the optimal output. We also end up with symmetry: firms have different MC curves, but they all end up with the same MC cost because they adjust. Visually: What are some other benefits? - Each person pays their fair share of the costs. - Since price equals average cost, and only occurs at the minimum of the AC curve, people end up paying the lowest possible amount. -
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This note was uploaded on 07/25/2011 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at University of California, Berkeley.

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09.22.08 - ECONOMICS 1 Professor Kenneth Train 9/22/08...

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