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EconS 425 - Perfect Competition and Monopoly Eric Dunaway Washington State University eric.dunaway@wsu.edu Industrial Organization Eric Dunaway (WSU) EconS 425 Industrial Organization 1 / 47 Introduction Today well review the structure of the perfectly competitive and monopoly markets. Well also dust o¤ how welfare calculations are done. Eric Dunaway (WSU) EconS 425 Industrial Organization 2 / 47 Supply and Demand Consider a setting where there are n identical rms. Each of these rms faces an individual demand function where for any given price p, consumers will demand a corresponding quantity from rm i, q , of i that good or service. As a function, qD =qD(p) i Under normal conditions (i.e., not a Gi¤en good), as the price of the good or service increases, the quantity demanded decreases. Thus, dqD i <0 qp Eric Dunaway (WSU) EconS 425 Industrial Organization 3 / 47 Supply and Demand Wecan add up all of these individual rms to form the aggregate demand curve n QD = ∑qD i i =1 where the aggregate quantity also decreases with increases in the market price. Remember that we have to add demand curves together horizontally. By that, I mean that only quantities can be added together (Honestly, it would make no sense to add prices together). Eric Dunaway (WSU) EconS 425 Industrial Organization 4 / 47
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