Timeline for Quantity restriction in model with fixed factor of production
Current License: CC BY-SA 4.0
3 events
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| May 25, 2021 at 5:16 | comment | added | tdm | @John. You assume perfect competition which means that firms are price takers and do not consider what will happen to their individual demand if one of them drops its price (i.e. they set quantities and consider prices as exogenous). What you are describing is Bertrand competition. Bertrand competition will indeed lead to price = marginal costs. | |
| May 25, 2021 at 0:38 | comment | added | John | I can see how your response follows from dropping equation (3), i.e. the 'price = marginal cost' condition. But isn't dropping this condition inconsistent with the perfectly competitive market structure? For example, any firm could cut its price slightly, capture the entire market share, and make greater profits. | |
| May 24, 2021 at 18:06 | history | answered | tdm | CC BY-SA 4.0 |