{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Lecture18 - Lecture 18 Equilibrium calculations cont...

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

View Full Document Right Arrow Icon
Lecture 18 Equilibrium calculations – cont. Efficiency of the competitive equilibrium (1): cost minimization AC and MC intersect at minimum AC
Background image of page 1

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

View Full Document Right Arrow Icon
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
Background image of page 2
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
Background image of page 3

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

View Full Document Right Arrow Icon
Competition yields efficient production The AC and MC curves intersect at the minimum value for AC.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}