Lecture 8 - Firm Supply

Question 1

Firm supply depends on

Answer 1

• Technology (production function)
• Market environment (demand)
• Goals
• Competitors’ behaviours

Question 2

Monopoly

Answer 2

Just one seller that determines the quantity supplied and the market clearing price

Question 3

Oligopoly

Answer 3

A few firms, the decisions of each influencing the payoffs of the others

Question 4

Dominant Firm

Answer 4

• 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

Question 5

Monopolistic Competition

Answer 5

Many firms each making a slightly different product + each firms output level is small relative to the total

Question 6

Pure Competition

Answer 6

• Many firms all making the same product
• Each firms output level is small relative to the total
• A firm in a perfectly competitive market knows it has no influence over the market prices for its product (market price taker)
• The firm is free to vary its own output
• If the firm sets its own price above the market price then the quantity demanded from the firm is 0
• If the firm sets its own price below the market price then the quantity demanded from the firm is the entire market quantity demanded

Question 7

Producer Surplus

Answer 7

Profit + Fixed Costs