![]() ![]() The marginal cost is the same for any firm in a perfectly competitive market at equilibrium. Note however that the values of the marginal cost curves at the equilibrium quantities are the same for each firm (and must be the same for each firm in equilibrium). So indeed we have a market equilibrium with perfect competition and different marginal cost curves. Are both firms setting $P=MC$ as they should in perfect competition? Is this an equilibrium with perfect competition? Well we found it by combining Supply and Demand assuming perfectly competitive firms, so it must be. Inserting these two supply functions into the inverse demand function we have: Hence they each set:įrom this, solving for quantity we have the respective Supply functions of each firm: Note that these are not the same! Since we are looking for a competitive equilibrium, the firms behave competitively and hence we must assume that they do not realize they have market power. Suppose the marginal cost curves for each firm are given by: Here $P$ represents the price, $q^m$ the market supply and $q_1, q_2$ represent the respective supplies of the firms 1 and 2. ![]() Suppose there are two firms in the market and the market inverse demand function is given by $P=7 - q^m = 7 - (q_1 + q_2)$ To disprove the general claim that "The marginal cost curve of each firm in a competitive market is the same" we simply need to find one counter-example, such as the one given below: However the values of marginal costs are. No, the marginal cost curves are not necessarily the same for each firm in the market. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |