microbook_3e-page87

microbook_3e-page87 - 1. How much of each input to demand...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
What does it mean to be a price taker? Households x Each firm has an upward sloping supply curve, but: o price is determined by market supply and demand o so shifts of one household’s demand curve do not affect the market price x Each household faces infinitely elastic (horizontal) supply Firms x Each household has a downward sloping demand curve, but: o price is determined by market supply and demand o so shifts of one firms’s supply curve do not affect the market price x Each firm faces infinitely elastic (horizontal) demand household’s view q p S D market-level view q p S D firm’s view q p S D Firms’ Basic Decisions
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1. How much of each input to demand 2. Which production technology to use 3. How much supply Short-Run vs. Long-Run In the short-run , two conditions hold: 1. firm is operating under a fixed scale of production – i.e. at least one input is held fixed (ex. it may be optimal for a firm to buy new machinery, but it can’t do so overnight) 2. firms can neither enter nor exit an industry In the long-run : x there are no fixed factors of production, so firms can freely increase or decrease scale operation x new firms can enter and existing firms can exit the industry Page 87...
View Full Document

This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

Ask a homework question - tutors are online