EconS 425 - Perfect Competition and Monopoly
                                                          Eric Dunaway
                                                   Washington State University
                                                       eric.dunaway@wsu.edu
                                                  Industrial Organization
            Eric Dunaway (WSU)                                   EconS 425                            Industrial Organization      1 / 47
    Introduction
             Today we’ll review the structure of the perfectly competitive and
             monopoly markets.
                     We’ll also dust o¤ how welfare calculations are done.
            Eric Dunaway (WSU)                                   EconS 425                            Industrial Organization      2 / 47
    Supply and Demand
             Consider a setting where there are n identical …rms. Each of these
             …rms faces an individual demand function where for any given price p,
             consumers will demand a corresponding quantity from …rm i, q , of
                                                                                                                           i
             that good or service. As a function,
                                                               qD =qD(p)
                                                                 i
             Under normal conditions (i.e., not a Gi¤en good), as the price of the
             good or service increases, the quantity demanded decreases. Thus,
                                                                   dqD
                                                                       i   <0
                                                                    qp
            Eric Dunaway (WSU)                                   EconS 425                            Industrial Organization      3 / 47
    Supply and Demand
             Wecan add up all of these individual …rms to form the aggregate
             demand curve                                                   n
                                                               QD = ∑qD
                                                                                   i
                                                                           i =1
             where the aggregate quantity also decreases with increases in the
             market price.
                     Remember that we have to add demand curves together horizontally.
                     By that, I mean that only quantities can be added together (Honestly,
                     it would make no sense to add prices together).
            Eric Dunaway (WSU)                                   EconS 425                            Industrial Organization      4 / 47