chap6 - Chapter 6 Perfectly Competitive Supply: the Cost...

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Chapter 6 Perfectly Competitive Supply: the Cost Side of the Market
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Example: how much time should Harry spend recycling soft drink containers? Harry can wash dishes at $6/hour for as long as he likes; He can recycle soft drink cans for 2 cents each Search time (hours/day) 0 0 1 600 2 1,000 3 1,300 Total number of containers found Additional number of containers found 600 400 300 200 100
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What is the lowest redemption price or reservation price that would induce Harry to recycle 1 hour/day? What about 2 hours/day, 3 hours/day….? Reservation Price: 1 hour recycling = p (600) = $6 = 1 cent 2 hours recycling = p (400) = $6 = 1.5 cents 3 hours recycling = p (300) = $6 = 2 cents 4 hours recycling = p (200) = $6 = 3 cents 5 hours recycling = p (100) = $6 = 6 cents ( 29 6 $ = Q p
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Quantity (100s of cans/day) 0 6 10 13 16 6 3 2 1 1.5 15 Harry’s Supply Curve of Container-recycling Service Price (cents/can)
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Quantity (100s of cans/day) + + 6 10 13 16 6 3 2 1 0 1.5 15 Harry’s Supply Curve 6 10 13 16 6 3 2 1 0 1.5 15 Barry’s Supply Curve Quantity (100s of cans/day) Price Price
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Quantity (100s of cans/day) 12 20 26 32 6 3 2 1 0 1.5 30 = = Price (cents/can)
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6 10 13 16 6 3 2 1 0 1.5 15 Market Supply Curve The Market Supply Curve with 1,000 Identical Sellers Price (cents/can) Quantity (100,000s of cans/day)
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Why is the supply curve upward sloping? 1. Low-hanging fruit principle When can prices are low, it might pay to get those cans that are easiest to get. When prices rise, it will pay to search farther from the beaten path. So when prices go up, people will supply more of the good. 2. Differences among suppliers in opportunity cost People facing unattractive employment opportunities may be willing to collect cans even when the redemption price is low. Those with more attractive options will collect cans only if the redemption price is relatively high. So when the price goes up, more people will supply the goods.
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Profit maximization firms in perfectly competitive markets Profit Maximization Profit =Total Revenue - All Costs
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This note was uploaded on 09/17/2011 for the course ECO 108 taught by Professor Wolman during the Spring '08 term at SUNY Stony Brook.

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chap6 - Chapter 6 Perfectly Competitive Supply: the Cost...

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