The Theory of Imperfect Competition The number of firms and average cost How do the average costs depend on the number of firms in the industry? Under symmetry, P=P, equation(6-5)tells us that 0=S/n but equation(6-4) shows us that the average cost depends inversely on a firms output We conclude that average cost depends on the size of the market and the number of firms in the industry AC=F/O+c=nX F/S+C (6-6) -The more firms there are in the industry the higher is the average cost Copyright C 2003 Pearson Education, Inc Slide 6-21Copyright © 2003 Pearson Education, Inc. Slide 6-21 • The number of firms and average cost – How do the average costs depend on the number of firms in the industry? The Theory of Imperfect Competition – Under symmetry, P = P, equation (6-5) tells us that Q = S/n but equation (6-4) shows us that the average cost depends inversely on a firm’s output. – We conclude that average cost depends on the size of the market and the number of firms in the industry: AC = F/Q + c = n x F/S + c (6-6) –The more firms there are in the industry the higher is the average cost