VictorBuzz

Introduction:

We have seen the way to derive a firm’s supply curve from its incremental cost curve. But during a competitive market, there’ll typically be many firms, therefore the supply curve the industry presents to the market is going to be the sum of the supplies of all the individual firms. during this chapter, we’ll investigate the industry supply curve.

Short-Run industry supply:

We begin by studying an industry with a hard and fast number of firms, n. We let Si(p) be the availability curve of the firm I, in order that the industry supply curve or the market supply curve is,

which is that the sum of the individual supply curves. Geometrically we take the sum of the quantities supplied by each firm at each price, which provides us a horizontal sum of supply curves.

Zero profits:

In an industry with free entry, profits are going to be driven to zero by new entrants: Whenever profits are positive, there’ll be an incentive for a replacement firm to  Come in to accumulate a number of those profits. When profits are zero it doesn’t mean that the industry disappears; it just means it stops growing since there’s not an inducement to enter.

In a long-run equilibrium with zero profits, all of the factors of production are being paid their market value —the same market price that these factors could earn elsewhere. The owner of the firm, for instance, remains to collect payment for her labor time, or for the quantity of cash she invested

in the firm, or for whatever she contributes to the operation of the firm. an equivalent goes for all other factors of production. The firm remains to make money—it is simply that each one the cash that it makes is being paid bent purchase the inputs that it uses. Each factor of production is earning an equivalent amount during this industry that it could earn elsewhere, so there are not any extra rewards—no pure profits—to attract new factors of production to the present industry. But there’s nothing to cause them to go away either. Industries in long-run equilibrium with zero profits are mature industries; they’re unlikely to seem because of the cover story in Business Week, but they form the backbone of the economy.

Fixed factors and Economic rent:

If there’s free entry, profits are driven to zero within the end of the day. But not Every industry has free entry. In some industries, the amount of firms within the industry is fixed. A common reason for this is often that there are some factors of production  That are available in fixed supply. We said that within the end of the day the fixed  Factors might be bought or sold by a private firm. But there are some Factors that are fixed for the economy as an entire even within the end of the day. the foremost obvious example of this is often in resource-extraction industries:

The oil within the ground may be a necessary input to the oil-extraction industry, and there is only such a lot of oil around to be extracted. an identical statement  Could be made for coal, gas, precious metals, or another such resource.

Rental rates and Prices:

Since we are measuring output in flow units—so much output per unit of  Time, we should always take care to live profits and rents in dollars per unit Of time. Thus within the above discussion, we talked about the rent per annum For land or for a taxicab license. If the land or the license is to be sold outright instead of rented, the