{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture18

# Lecture18 - Lecture 18 Equilibrium calculations cont...

This preview shows pages 1–5. Sign up to view the full content.

Lecture 18 Equilibrium calculations – cont. Efficiency of the competitive equilibrium (1): cost minimization AC and MC intersect at minimum AC

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

View Full Document
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
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

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

View Full Document
Competition yields efficient production The AC and MC curves intersect at the minimum value for AC.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}