Each participant plays the role of a firm that must make decisions about
inputs to be used in production. One input, selected in advance, generates
a sunk cost, and a second input determines variable
costs. In addition, a regulation requires a permit for each
unit of output produced (e.g. an emissions allowance).
These permits may be distributed as
an endowment that can
be used, bought, or sold. Using this input incurs an opportunity cost, even
if the input is not purchased.
Output market options include sale at a fixed price or price
competition in an environment that satisfies incentive compatibiliby conditions
for accurate cost revelation (proxy bidding with an exogenous "market price").
Copyright 2009, Charles Holt, Please report problems and suggestions:
| || || || || ||Key Concepts:|
Supply (Long Run)
Avoidable Fixed Cost
Average Total Cost
Vecon Lab - December 7, 2022