Lecture18 - Lecture 18 Equilibrium calculations cont Efficiency of the competitive equilibrium(1 cost minimization AC and MC intersect at minimum

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Lecture 18 Equilibrium calculations – cont. Efficiency of the competitive equilibrium (1): cost minimization AC and MC intersect at minimum AC
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Problem # 10 Initial conditions: Let market demand Q D = 6500 – 100P Market supply Q S = 1200P Identical firms with cost C(q) = 722 + q 2 /200 Short run solution: Industry conditions D = S →1200p* = 6500 100p* p* = 6500/1300 = 5 Market output Q* = 1200p* = 6000 Firm conditions P = MC = 2q/200 = q/100 = p*; q* = 100p* q* = 500 Per firm profits = Revenues – Costs = 528 Number of firms = 6000/500 = 12. Will there be entry? Per-firm costs and profits p *= 5 q *=500 Market demand and short-run supply p *=5 Q*=6000 mc ac profits demand supply AC(500) quantity output cost price
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When p = MC = AC, entry ceases Per-firm costs and profits 5 500 5 6000 mc ac profits Entry: Per-firm costs and profits 500 mc ac profits More entry: p = MC = AC; no profits 500 mc ac p1 p2 p1 p 2=p*=AC(q*) q1 q * Q2 price Market demand and supply AC(q1) AC(500) output output output cost cost cost quantity
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This note was uploaded on 01/17/2012 for the course ECON 100A taught by Professor Safarzadeh during the Fall '09 term at UC Irvine.

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Lecture18 - Lecture 18 Equilibrium calculations cont Efficiency of the competitive equilibrium(1 cost minimization AC and MC intersect at minimum

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