L19 Supply function, Entry and market structure. Today:  Partial equilibrium model (one industry)  Producers with cost functions  Questions -Equilibrium.

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Presentation transcript:

L19 Supply function, Entry and market structure

Today:  Partial equilibrium model (one 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: 1.Equilibrium price (Market clearing) 2.Individual and aggregate production? 3.Profits (positive? zero?) 4.Should we expect entry?

Equilibrium with N firms

 Assume 1.No licensing 2.No patents 3.No any other entry barrier  Firms -enter when positive profit -leave when negative profit  No entry or exit as long as -profit equal to zero Free Entry (Marshall)

No entry condition Number of firms Equilibrium with free entry 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 pall N … Name