Chapter Twenty-Three Industry Supply
Chapter Twenty-Three Industry Supply
What is the purpose of this chapter? It is to derive the market supply curve from individual firms'supply curve
What is the purpose of this chapter? It is to derive the market supply curve from individual firms’ supply curve
Short-Run Supply In a short-run the number of firms in the industry is,temporarily,fixed. Let S(p)be firm i's supply function. The industry's short-run supply function is n SP)=ΣSD) i=1
Short-Run Supply In a short-run the number of firms in the industry is, temporarily, fixed. Let Si (p) be firm i’s supply function. The industry’s short-run supply function is S p Si p i n ( ) = ( ). =1
Supply From A Competitive Industry Firm 1's Supply Firm 2's Supply p p S1(p") Si(p) S2(p")S2(p) p 0 Sp"+S2(p") S(p)=S1(p)+S2(p) Industry's Supply
Supply From A Competitive Industry p S1 (p) p S2 (p) p S(p) = S1 (p) + S2 (p) p” p” S1 (p”) S1 (p”)+S2 (p”) S2 (p”) Firm 1’s Supply Firm 2’s Supply Industry’s Supply
Short-Run Industry Equilibrium In a short-run,neither entry nor exit can occur. Consequently,a firm's profit can be positive,zero,or negative
Short-Run Industry Equilibrium In a short-run, neither entry nor exit can occur. Consequently, a firm’s profit can be positive, zero, or negative
Short-Run Industry Equilibrium Short-run industry supply pse Market demand Y Short-run equilibrium price clears the market and is taken as given by each firm
Short-Run Industry Equilibrium Market demand Short-run industry supply ps e Ys e Y Short-run equilibrium price clears the market and is taken as given by each firm
Short-Run Industry Equilibrium Firm 1 Firm 2 Firm 3 y y2* y2 y3 Y;
Short-Run Industry Equilibrium y1 y2 y3 ACs ACs ACs MCs MCs MCs y1 * y2 * y3 * ps e Firm 1 Firm 2 Firm 3
Short-Run Industry Equilibrium Firm 1 Firm 2 Firm 3 pse Π1>0 Π2<0 Π3=0 y1 V2 V2 V3" Firm 1 wishes Firm 2 wishes Firm 3 is to remain in to exit from indifferent. the industry. the industry
Short-Run Industry Equilibrium y1 y2 y3 ACs ACs ACs MCs MCs MCs y1 * y2 * y3 * ps e Firm 1 Firm 2 Firm 3 Firm 1 wishes to remain in the industry. Firm 2 wishes to exit from the industry. Firm 3 is indifferent. P1 > 0 P2 < 0 P3 = 0
Long-Run Industry Supply In the long-run entry and exist are possible. Positive economic profit induces entry. Entry increases industry supply, causing pse to fall. When does entry cease?
Long-Run Industry Supply In the long-run entry and exist are possible. Positive economic profit induces entry. Entry increases industry supply, causing ps e to fall. When does entry cease?
Long-Run Industry Supply The Market A“Typical''Firm 0 Mkt.Demand S2(p) MC(y)AC(y) Mkt. Supply Suppose the industry initially contains only two firms
Long-Run Industry Supply S2 (p) Mkt. Demand MC(y) AC(y) y The Market A “Typical” Firm p p Y Suppose the industry initially contains only two firms. Mkt. Supply