Lecture 12 Short and Long Run Supply

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Lecture 12 - Short and Long Run Supply

• Wissinks Words

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remarks

• Short-run market supply (SRS) the market SRS
  curve is the horizontal sum of the quantities
  supplied by each seller at each market price.
• Market supply thus reflects the marginal costs of
  each of the producers in the market.

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• Recall The supply function for X from lecture
  3QS g(PX, Pfop, Poc, ST, N) wherePX Xs
  pricePfop the price of factors of
  productionPoc the opportunity costsST
  science and technologyN number of firms in the
  market
• Note Its all in there!
• Weve constructed the supply curve from scratch.

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short run vs. long run equilibrium

• In the short run market equilibrium
• Firms are profit maximizing (based on short run
  cost curves).
• Given the number of firms in the market,
  demandshort run market supply.
• There is no tendency for market price (P) or
  quantity (Q) to change or for firms to change
  their output levels (q)

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• In the long run market equilibrium
• The market is in a short run equilibrium DSRS.
• Firms are profit maximizing (based on long run
  cost curves).
• Firms do not want to enter or exit the market
• There is no tendency for market price (P) or
  quantity (Q) to change or for firms to change
  their output levels (q) or for the number of
  firms in the market to change (N).

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comparative statics

• What would alter the market equilibrium?
• changes in demand characteristics
• changes in the factors that determine supply
  e.g., factor price and/or technology
• Comparative statics, again.