Equilibrium price. Equilibrium allocation: x=xi(p,p·w2), Note: A p* for any >0 is also an equilibrium price. Offer curve: (p)(p, p. w;). The equilibrium is the intersection point of the offer curves. Excess demand function:
5. Oligopoly Oligopoly: Small number of firms: Firms depend on each other. Identical products: Firms jointly face a downward sloping industry demand No entry: Long-run positive profits are possible
8.1. Independent Firms The downstream firm's problem is max(a-bxc-wT The upstream firm's problem is max(a-2b)3-cr The output is 8.2. Integrated Firm Suppose now that the two firms merge into one firm. This firms problem is max(a-by)y