ch23lec - Chapter 23 Industry Supply Supply From A...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 23 Industry Supply
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Supply From A Competitive Industry How are the supply decisions of the many individual firms in a competitive industry to be combined to discover the market supply curve for the entire industry? Since every firm in the industry is a price-taker, total quantity supplied at a given price is the sum of quantities supplied at that price by the individual firms. 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 short-run supply function is S p S p i i n ( ) ( ). ¦ 1
Image of page 2
Supply From A Competitive Industry p S 1 (p) p S 2 (p) p S(p) = S 1 (p) + S 2 (p) p” p” S 1 (p”) S 1 (p”)+S 2 (p”) S 2 (p”) Firm 1’s Supply Firm 2’s Supply Industry’s Supply
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
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.) Market demand Short-run industry supply p s e Y s e Y Short-run equilibrium price clears the market and is taken as given by each firm.
Image of page 4
Short-Run Industry Equilibrium y 1 y 2 y 3 AC s AC s AC s MC s MC s MC s y 1 * y 2 * y 3 * p s e Firm 1 Firm 2 Firm 3 Firm 1 wishes to remain in the industry . Firm 2 wishes to exit from the industry. Firm 3 is indifferent. 3 ± > 0 3 ² < 0 3 ³ = 0
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Long-Run Industry Supply In the long-run every firm now in the industry is free to exit and firms now outside the industry are free to enter. The industry’s long-run supply function must account for entry and exit as well as for the supply choices of firms that choose to be in the industry. How is this done? Positive economic profit induces entry. Economic profit is positive when the market price p s e is higher than a firm’s minimum av. total cost; p s e > min AC(y).
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern