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Supply and demand
- Updated at
- 29. May 2022
- Description
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- Three different firms producing goods at three different efficiency levels.
- All firms are price-takers and must therefore choose the number of units produced such that the marginal cost is equal to the market price of the produced unit.
- It is assumed there are no taxes.
- Each firm has a cost function \text{C}(Q), where Q denotes number of produced units.
- Firms:
- Smith
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One skilled smith producing hand-crafted goods. Very low startup cost, but does not scale well.
Cost function: .
- Workshop
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Workshop with semi-automated production lines. Production scales up better than a smith, but has a higher startup cost.
Cost function: .
- Factory
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Fully automated, modern factory. Scales very well, but has a very high startup cost.
Cost function: .
- Book chapter
- Leibniz 8.4.1 The firm and market supply curves