Principles of Microeconomics Lecture 18 – Firm Supply Part 1

Principles of Microeconomics Lecture 18 – Firm Supply Part 1

 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.
 Dominant Firm: Many firms, but one much larger than the rest. The large firm’s decisions affect the payoffs
of each small firm. Decisions by any one small firm do not noticeably affect the payoffs of any other firm.
 Monopolistic Competition: Many firms each making a slightly different product. Each firm’s output level is
small relative to the total.
 Pure Competition: Many firms, all making the same product. Each firm’s output level is small relative to the
total.

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.




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 So the demand curve faced by the individual firm is ...




o




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 For the interior case of ys* > 0, the first-order maximum profit condition is

o
o So at a profit maximum with ys* > 0, the market price p equals the marginal cost of production at y =
ys*.
 For the interior case of ys* > 0, the second-order maximum profit condition is