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.
Copyright 2009, Charles Holt, Please report problems and suggestions:
| || || || || ||Key Concepts:|
Supply (Long Run)
Avoidable Fixed Cost
Average Total Cost
Vecon Lab - April 21, 2019