A Classroom Entry and Exit Game of Supply with Price Taking Firms

Journal of Economic Education, Vol. 36, Fall 2005

25 Pages Posted: 8 Jun 2006

See all articles by Stephen L. Cheung

Stephen L. Cheung

The University of Sydney; IZA Institute of Labor Economics

Abstract

The author describes a classroom game demonstrating the process of adjustment to long-run equilibrium in a market consisting of price taking firms. This game unites and extends key insights from several simpler games in a framework more consistent with the standard textbook model of a competitive industry. Because firms have increasing marginal costs and can offer multiple units for sale, they face a nontrivial supply decision. This is nested in an entry and exit game with price adjustment to capture long-run aspects of the standard model. Finally, by introducing heterogeneity in firms' fixed costs, the game demonstrates how the price mechanism not only establishes the equilibrium number of firms and the output of each, but also the identities of the most efficient sellers.

Keywords: classroom game, entry and exit, supply

JEL Classification: A22, A23, D41

Suggested Citation

Cheung, Stephen L., A Classroom Entry and Exit Game of Supply with Price Taking Firms. Journal of Economic Education, Vol. 36, Fall 2005, Available at SSRN: https://ssrn.com/abstract=906693

Stephen L. Cheung (Contact Author)

The University of Sydney ( email )

School of Economics
Social Sciences Building A02
Sydney, NSW 2006
Australia
+61 2 9351 2135 (Phone)
+61 2 9351 4341 (Fax)

HOME PAGE: http://https://sydney.edu.au/arts/economics/staff/profiles/stephen.cheung.php

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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