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Supply function, Entry and market structure
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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)?
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Producer: Cost curves pall
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Optimal supply (price takers)
pall
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Industry supply (N firms)
Individual supply Aggregate supply S(p)?
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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?
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Equilibrium with N firms
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Quiz
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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
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Equilibrium with free entry
No entry condition Number of firms pall
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Fixed cost and entry pall
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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
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