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Microeconomics I

Andr Gomes

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Defenition of competitive markets The Market Supply Curve Market Supply with Many Identical Sellers Long and Short Run Supply Long Run and Short Run NYS Apple Supply Curves Graph of the NYS Apple Supply Curves The Effects of Changing a Variable Input Price Changing a Variable Input Price: Industry-level Changes Increasing a Variable Input Price Changing a Fixed Input Price: Industry-level Changes The Effects of Changing a Fixed Input Price Sources

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Competitive market is the commercialenvironment where the producer doesn'thave the power to determine the price.

It is the market that determines the pricebecause there is no monopoly or oligopoly,however, the quality of your product orlower the price will become competitivebecause the factor "preference" ofconsumers.

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Like the market demand curve, the marketsupply curve is just the sum of thequantities supplied by each seller at each

market price.

Market supply, thus reflects the marginalcosts of each of the producers in the

market.

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In markets where there are many identicalsellers of a homogenous product, it isimportant to distinguish between the "shortrun" and "long run" supply curves.

We have been talking about the "short run"supply curve because some factors were

variable (labor) and some were fixed(space, managerial time).

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The long run supply curve measures thequantities of a good or service offered forsale by all sellers--potential and actual--who could sell in the market.

Long run supply is more elastic than shortrun supply.

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The graph shows the short run and long run supply curves forNew York State apples. The short run curve is 1,700 (current number of farms) times thesupply of a typical apple farm. Long run supply is horizontal at $400/ton (economic profits = 0)

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A variable input is one that can be adjustedin the short run.

For the apple farm example above, hiredlabor is the only variable input.

We are going to analyze the effects ofincreasing the price of a variable input on

the short and long run supply curves in acompetitive product market.

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When the price of a variable inputincreases: Marginal cost increases for every firm.

Average total cost increases for every firm. Minimum ATC increases for every firm. Short run industry supply decreases, shifts to the

left.

The long run industry supply curve shifts toa line infinitely elastic at the new, higherminimum ATC.

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The graph, once again, shows the entire market. The new short run supply curve, the sum of the MC curves for allcurrently operating firms, is above and to the left of the original supplycurve. The new long run supply is infinitely elastic at the price equal to the

minimum ATC for the new input prices.

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A fixed input is one that cannot be adjustedin the short run.

In the apple farm example, land and the

proprietors time are both fixed inputs.

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The graph, once again, shows the entire market, with theinitial position shown in the curves we used above. The short run supply curve, the sum of the MC curves forall currently operating firms, does not change. The new long run supply is infinitely elastic at the price

equal to the minimum ATC for the new input prices.

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http://www.colorado.edu/economics/morey/2010/2010BookChapters/KW_Chapter9/KWCh_09_The_Industry_Supply_Curve_Edward.pdf

http://tutor2u.net/economics/content/topics/competi

tion/competition.htm http://www.michaeljonas.com.br/meu%20trabalho/f

bb_grad/Economia%20I/Ch14%20Empresas%20em%20Mercados%20Competitivos.pdf

http://economicsconcepts.com/short_run_equilibriu

m_of_the_price_taker_firm.htm http://www.notapositiva.com/dicionario_economia/

precomercado.htm

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