Basic Microeconomics Homework help in Competitive Market Analysis !
Get Homework Help on Competitive market analysis theory from our online experts tutors
 |
Competitive Markets |
 |
| |
- The competitive firm:
A competitive firm is one that takes the market price of output as being given and outside of its control. In a competitive market each firm takes the price as being independent of its own actions, although it is the actions of all firms taken together that determine the market price.
Let p be the market price. Then the demand curve facing an ideal competitive firm takes the form:
The profit maximization problem:
maxypy – c (y).
The first-order and second-order conditions for an interior solution are
- p = c'( y *)
- c" (y*) ≥ 0.
The industry supply function
The industry supply function is simply the sum of the individual firm supply functions. If yi (p) is the supply function of the ith firm in an industry with m firms, the industry supply function is given by
Y (p) = 
Pareto efficiency
A more general objective is the idea of Pareto efficiency. A Pareto efficient allocation is one for which there is no way to make all agents better off. Said another way, a Pareto efficient allocation is one for which each agent is as well off as possible, given the utilities of the other agents.
Taxes and subsidies
The important thing to remember about a tax is that there are always two prices in the system, the demand price and the supply price. The demand price, Pd, is the price paid by the demanders of a good, and the supply price, Ps, is the price received by the suppliers of the good; they differ by the amount of the tax or subsidy.
- Tax
- Quantity tax: Pd = Ps + t.
- Value tax: Pd = (1 +t) Ps
- Subsidy
|
|
 |
|
 |
Submit your homework or assignment.
