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Firm Supply
Firm Supply
How
Market Environments
Are
Market Environments
Monopoly:
Market Environments
Monopolistic
Competition: Many
firms each making a slightly different
product. Each firms output level is
small relative to the total.
Pure Competition: Many firms, all
making the same product. Each
firms output level is small relative to
the total.
Market Environments
This
Pure Competition
A
Pure Competition
If
Pure Competition
So
Pure Competition
$/output unit
Market Supply
pe
Market Demand
Pure Competition
$/output unit
Market Supply
p
pe
At a price of p, zero is
demanded from the firm.
Market Demand
Pure Competition
$/output unit
Market Supply
p
pe
p
At a price of p, zero is
demanded from the firm.
Market Demand
y
At a price of p the firm faces the entire
market demand.
Pure Competition
So
Pure Competition
$/output unit
Market Supply
p
pe
p
At a price of p, zero is
demanded from the firm.
Market Demand
y
At a price of p the firm faces the entire
market demand.
Pure Competition
$/output unit
p
pe
p
Market Demand
Smallness
What
Smallness
$/output unit
Firms MC
Firms demand
curve
y
The individual firms technology causes it
always to supply only a small part of the
total quantity demanded at the market price.
m
(y0y)
a
x
p
y
c(y).
ss
m
(y0y)
a
x
p
y
c(y).
ss
m
(y0y(i))
a
x
(d
p
)
.2sy(
y
c
y
ss
p
M
C
(
y
)
0
s
)
*
0at.
ys*
(
)M
y
sp
M
C
(
y
)
0
.
s
*
C
s).
That is,
2
d
)
d
d
M
C
(
y
)
s(y
s
p
M
C
(
y
)
0
.
M
yC
s
(s*)
0
.
That is,
pe
MCs(y)
y
ys*
At y = ys*, p = MC and MC
slopes upwards. y = ys* is
profit-maximizing.
pe
MCs(y)
y
ys*
At y = ys*, p = MC and MC
slopes upwards. y = ys* is
profit-maximizing.
pe
MCs(y)
y
ys*
y
At y = y, p = MC and MC slopes downwards.
y = y is profit-minimizing.
pe
At y = ys*, p = MC and MC
slopes upwards. y = ys* is
profit-maximizing.
So a profit-max.
supply level
can lie only on
MCs(y)
the upwards
sloping part
ys*
y
of the firms
MC curve.
)
p
y
c0sv
(F
y)
p
y
F
c
(
y
)
.
s(y
cv(0)
)
p
y
F
cv(y)
F
.
s(y
)p
p
y
F
c
(
y
)
F
.
s(y
v
0
(y
c
)
v
A
V
C
).
s(y
I.e.,
only if
Equivalently, only if
MCs(y)
ACs(y)
AVCs(y)
MCs(y)
ACs(y)
AVCs(y)
p AVCs(y)
MCs(y)
ACs(y)
AVCs(y)
p AVCs(y)
ys* > 0.
MCs(y)
ACs(y)
AVCs(y)
p AVCs(y)
ys* > 0.
MCs(y)
ACs(y)
AVCs(y)
p AVCs(y)
y
ys* = 0.
p AVCs(y)
ys* > 0.
MCs(y)
ACs(y)
AVCs(y)
p AVCs(y)
Shutdown
MC
(y)
s
point
ACs(y)
AVCs(y)
The firms short-run
supply curve
y
(y)
p
y
c().
The
m
(y0p
a
x
)d
p
y
c
(
)
.
M
C
(y
)
a
n
d
0.
The
y)
p
y
c
(A
y)C
0.
AC(y)
MC(y)
AC(y)
MCs(y)
MC(y)
AC(y)
MC(y)
MCs(y)
AC(y)
ys*
y*
MC(y)
MCs(y)
p
AC(y)
ys*
y*
MC(y)
MCs(y)
p
AC(y)
ys*
y*
MCs(y)
MC(y)
AC(y)
p
ys*
MCs(y)
MC(y)
AC(y)
p Loss
ys*
MCs(y)
MC(y)
AC(y)
p Loss
ys*
This loss can be eliminated in the longrun by the firm exiting the industry.
AC(y)
AC(y)
ys*
AC(y)
ys*
AC(y)
y* ys*
AC(y)
y* ys*
AC(y)
y* ys*
MC(y)
AC(y)
MCs(y)
ACs(y)
AVCs(y)
MCs(y)
ACs(y)
AVCs(y)
MCs(y)
p
ACs(y)
AVCs(y)
y*(p)
MCs(y)
p
ACs(y)
AVCs(y)
PS
y*(p)
y
*
(
p
)
P
S
(p
)
M
(cy*v0(pyz))*d
C
y0*(p
s)
(.z)
s(p
MCs(y)
p
ACs(y)
AVCs(y)
PS
y*(p)
y
*
(
p
)
cvs
(y*p
)0M
C
(z)d
Producers Surplus Revisited
$/output unit
MCs(y)
ACs(y)
AVCs(y)
y*(p)
MCs(y)
p
ACs(y)
AVCs(y)
Revenue
= py*(p)
y*(p)
MCs(y)
p
ACs(y)
AVCs(y)
Revenue
= py*(p)
cv(y*(p))
y*(p)
MCs(y)
p
ACs(y)
AVCs(y)
PS
y*(p)