Supply function, Entry and market structure

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Presentation transcript:

Supply function, Entry and market structure

Today: Partial equilibrium model (one industry) Example: Smart phone industry Producers with cost functions Questions Equilibrium with N firms Free entry: How many firms (N)?

Producer: Cost curves pall

Optimal supply (price takers) pall

Industry supply (N firms) Individual supply Aggregate supply S(p)?

Equilibrium with N firms Demand for a good There are N identical firms in the industry Questions: Equilibrium price (Market clearing) Individual and aggregate production? Profits (positive? zero?) Should we expect entry?

Equilibrium with N firms

Quiz

Free Entry (Marshall) Assume No licensing No patents No any other entry barrier Firms (investors) enter when positive profit leave when negative profit No entry or exit as long as profit equal to zero

Equilibrium with free entry No entry condition Number of firms pall

Fixed cost and entry pall

Market structure Market structures categorized as Conceptual problem when N<10 : - price taking controversial need for a better model (market power) monopoly, oligopoly N 1 2 3-10 10-… Name pall