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Competitive market model in the long-run

The model of competitive markets in the long-run is one of the most important models in the microeconomics curriculum. Although MarketLink doesn't currently include a long-run competitive market model, we do plan to include the long-run competitive market model in the future. The lecture notes give significant coverage to the topic, and there is also discussion of the choice problem that a seller would face in an experimental implementation of the long-run competitive market model.

Lecture note coverage of the topic is fairly extensive. In the long-run model, firms can expand their capacity in order to reduce their marginal cost. The reduction to the marginal cost curve for a firm as its capacity expands means that the firm - and hence the market - supply expands. These ideas are described to motivate the model in Sections 5.1 and 5.2. In order to carry out this analysis in a coherent way, the model needs to show how the production function of a firm is used to determine a short-run cost function and a marginal cost function for the firm. The lecture notes develop these ideas in a formal way, but with only moderate mathematical requirements. Development of the model of firm capacity choice, firm supply, and market supply are carried out in Sections 5.3 through 5.6. Section 5.7 describes the market adjustment problem when new firms can enter a market with economic profits, or when existing firms can exit a market with economic losses. The last part of the notes on long-run competitive market model examines the problem of market adjustment when firms alter their capacity (rather than when the number of firms adjusts, as in the previous subsection).

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