Supply and Pricing in Competitive Markets

Cost of production would have
no effect on competitive price if it
could have none on supply.
John Stuart Mill
There are two sides to every market: supply and demand. If we want to understand why oil prices doubled in the fall of 1990, causing turmoil in financial markets and anxiety among consumers, we must examine carefully the complex interaction of supply and demand in the world oil market. We have to study the determinants of the demand for oil productions. And, on the supply side, we must appreciate how decisions depend upon costs of production. The time has come to put the blocks together to analyze competitive markets.
First we will look at how the cost of production determines the supply behavior of competitive firms and industries. We will see that the production of a profit-maximizing firm depends upon its cost of production. The firm’s marginal cost of production plays a central role in affecting its supply decisions.
The second point is that the marginal cost is central for the industry as well as for the firm. We end by investigating the efficiency of a competitive industry. We will see that there is no reorganization of production that can improve the resource allocation generated by a competitive market, although the allocation will not necessarily be fair or equitable. (Samuelson P.A& Nordhaus W.D., 1992, 140 p.)
The aim of report is to analyze supply and pricing in competitive markets.
The purposes of report:
1.to analyze supply behavior of the competitive firm;
2.to find out supply behavior in competitive industries;
3.to explore efficiency and equity of competitive markets.
The report consists of three following chapters.…