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Industrial Organization summary with notes, formulas, graphs etc.
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Industrial OrganizationWEEK I
The 3 pillars of public policy
1. Fiscal policy
2. Monetary policy
3. Antitrust (mededinginsrecht) and regulation
Reasons for regulation and antitrust
Economic reasons: pursue of economic efficiency
Social justice
Private interests
profit function (q) = R(q) - C(q)
marginal profit MP(q) = MR(q) - MC(q)
MC = dTC(q)/dq
AC = TC(q)/q
AVC = VC(q)/q
AFC = FC(q)/q
Supply curves:
Short run: MC curve > min AVC
Long run: MC < min ATC: Profits will persist if entry barriers are sufficiently high
Shutdown if:
Short run: MC < min AVC
Long run: MC < min ATC
Profits will persist if entry barriers are sufficiently high
Perfect competition
Efficient level of production: P = MC
Example
Given: Market demand, Qd
Total cost-function, TC(q)
Long equilibrium price:
In LR: ATC = MC = P and profits = 0
Set ATC = MC and solve for the LR output for each firm, qs.
The firm produces were P = MR = MC
Substitute qs in MC. Solve for the LR equilibrium price, P.
Number of firms:
Substitute the market price, P, into the market demand, Qd
Since each firm is making qs units, the number of firms, n, is Qd/qs
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