2020/8/23,中级微观经济学,Chapter Twenty-Two,Firm Supply,2020/8/23,中级微观经济学,Firm Supply,How does a firm decide how much product to supply? This depends upon the firms technology market environment goals competitors behaviors,2020/8/23,中级微观经济学,Market Environments,Are there many other firms, or just a few? Do other firms decisions affect our firms payoffs? Is trading anonymous, in a market? Or are trades arranged with separate buyers by middlemen?,2020/8/23,中级微观经济学,Market Environments,Monopoly: Just one seller that determines the quantity supplied and the market-clearing price. Oligopoly: A few firms, the decisions of each influencing the payoffs of the others.,2020/8/23,中级微观经济学,Market Environments,Dominant Firm: Many firms, but one much larger than the rest. The large firms decisions affect the payoffs of each small firm. Decisions by any one small firm do not noticeably affect the payoffs of any other firm.,2020/8/23,中级微观经济学,Market Environments,Monopolistic Competition: Many firms each making a slightly different product. Each firms output level is small relative to the total. Pure Competition: Many firms, all making the same product. Each firms output level is small relative to the total.,2020/8/23,中级微观经济学,Market Environments,Later chapters examine monopoly, oligopoly, and the dominant firm. This chapter explores only pure competition.,2020/8/23,中级微观经济学,Pure Competition,A firm in a perfectly competitive market knows it has no influence over the market price for its product. The firm is a market price-taker. The firm is free to vary its own price.,2020/8/23,中级微观经济学,Pure Competition,If the firm sets its own price above the market price then the quantity demanded from the firm is zero. If the firm sets its own price below the market price then the quantity demanded from the firm is the entire market quantity-demanded.,2020/8/23,中级微观经济学,Pure Competition,So what is the demand curve faced by the individual firm?,2020/8/23,中级微观经济学,Pure Competition,Y,$/output unit,Market Supply,Market Demand,pe,2020/8/23,中级微观经济学,Pure Competition,y,$/output unit,Market Supply,pe,p,At a price of p, zero is demanded from the firm.,Market Demand,2020/8/23,中级微观经济学,Pure Competition,y,$/output unit,Market Supply,pe,p,p”,At a price of p” the firm faces the entire market demand.,At a price of p, zero is demanded from the firm.,Market Demand,2020/8/23,中级微观经济学,Pure Competition,So the demand curve faced by the individual firm is .,2020/8/23,中级微观经济学,Pure Competition,y,$/output unit,Market Supply,pe,p,p”,At a price of p” the firm faces the entire market demand.,At a price of p, zero is demanded from the firm.,Market Demand,2020/8/23,中级微观经济学,Pure Competition,Y,$/output unit,pe,p,p”,Market Demand,2020/8/23,中级微观经济学,Smallness,What does it mean to say that an individual firm is “small relative to the industry”?,2020/8/23,中级微观经济学,Smallness,$/output unit,y,Firms MC,The individual firms technology causes italways to supply only a small part of the total quantity demanded at the market price.,Firms demand curve,pe,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,Each firm is a profit-maximizer and in a short-run. Q: How does each firm choose its output level?,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,Each firm is a profit-maximizer and in a short-run. Q: How does each firm choose its output level? A: By solving,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,What can the solution ys* look like?,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,What can the solution ys* look like?(a) ys* 0:,P(y),y,ys*,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,What can the solution y* look like?(b) ys* = 0:,P(y),y,ys* = 0,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,For the interior case of ys* 0, the first-order maximum profit condition is,That is,So at a profit maximum with ys* 0, themarket price p equals the marginalcost of production at y = ys*.,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,For the interior case of ys* 0, the second-order maximum profit condition is,That is,So at a profit maximum with ys* 0, thefirms MC curve must be upward-sloping.,2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,$/output unit,y,pe,ys*,y,MCs(y),2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,$/output unit,y,pe,ys*,y,At y = ys*, p = MC and MCslopes upwards. y = ys* is profit-maximizing.,MCs(y),2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,$/output unit,y,pe,ys*,y,At y = ys*, p = MC and MCslopes upwards. y = ys* is profit-maximizing.,At y = y, p = MC and MC slopes downwards.y = y is profit-minimizing.,MCs(y),2020/8/23,中级微观经济学,The Firms Short-Run Supply Decision,$/output unit,y,pe,y,At y = ys*, p = MC and MCslopes upwards. y = ys* is profit-maximizing. So a profit-max. supply level can lie only on the upwards sloping part of the firms MC curve.,MCs(y),ys*,2020/8/23,中级微观经济学,The Firms