industsupply.23a

industsupply.23a - Econ 100A: Industry Supply (Chapter 23)...

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Unformatted text preview: Econ 100A: Industry Supply (Chapter 23) Thomas G. Koch Fall 2008 Thomas G. Koch Industry Supply (23A) 1(47) Clickers Turn on your clicker Hit a button Thomas G. Koch Industry Supply (23A) 2(47) From last time The supply of a firm in a competitive market But there should be many firms . . . in an industry Extend study to an industry of many firms Thomas G. Koch Industry Supply (23A) 3(47) Adding across firms The supply of any firm i is S i ( p ) Add up the supply of firms 1 , 2 , 3 ,..., i- 1 , i , i + 1 ,..., n- 1 , n To get the final supply S ( p ) = S 1 ( p ) + S 2 ( p ) + ... + S n ( p ) = n X i =0 S i ( p ) Thomas G. Koch Industry Supply (23A) 4(47) Adding horizontally Thomas G. Koch Industry Supply (23A) 5(47) In the SR Firms may have different SR cost curves So some may be making positive, negative profits Others, no profit Thomas G. Koch Industry Supply (23A) 6(47) Three firms, one price Thomas G. Koch Industry Supply (23A) 7(47) In the LR Now, firms adjust fixed factors Move from SR cost curves to LR cost curves What if p < AC l ( y )? Firm should exit Thomas G. Koch Industry Supply (23A) 8(47) Also in LR Suppose a firm makes positive profits Other firms should want to enter Can they? Is there free entry? Thomas G. Koch Industry Supply (23A) 9(47) Free entry vs. Barriers to entry If free entry, no restrictions on production Wheat farmerno licensure, special technology; just seeds + land. But cell service providers, doctors, lawyers cant just open shop There are barriers to entry Thomas G. Koch Industry Supply (23A) 10(47) Suppose free entry If positive profits, others will want to enter And they will enter And they will change total amount offered and its price (and profits, etc.) Thomas G. Koch Industry Supply (23A) 11(47) Suppose all firms similar Let all firms have same LR cost function, c ( y ) Find y * , where AC ( y ) is lowest p * = AC ( y * ) is lowest price that supports production p < p * = AC ( y * ) means no non-negative profits possible Thomas G. Koch Industry Supply (23A) 12(47) As there are more firms Positive profits + free entry means . . ....
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This note was uploaded on 09/12/2011 for the course ECON 100A/ 100B taught by Professor Staff during the Fall '08 term at UCSB.

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industsupply.23a - Econ 100A: Industry Supply (Chapter 23)...

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