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. Participants are placed in a competitive environment that satisfies incentive compatibility conditions
for accurate cost revelation (proxy bidding with an exogenous "market price").
The optimal supply decisions depend on whether the fixed entry cost is a sunk cost
that is automatically incurred, or whether it is an avoibable fixed cost, which
serves to limit supply to the range of marginal cost above minimum average total cost.
| | | | | | Key Concepts: Supply (Long Run) Opportunity Cost Sunk Cost Avoidable Fixed Cost Average Total Cost |
Copyright 2009, Charles Holt, Please report problems and suggestions:
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Vecon Lab - April 19, 2024 |