ENG ELC 220 Lecture Notes - Lecture 15: Average Variable Cost, Sunk Costs, Marginal Cost
1 Nov 2020
School
Department
Course
Professor
Document Summary
Chapter 5 discussed static models: firms made decisions on price and output simultaneously, at one given point in time. Now we look how decisions evolve over time, i. e. the dynamics of competition. Entry: beginning of production and sales by a new firm in the market. Entrants harms incumbents by: taking away market share, lowering prices (e. g. to establish a foothold in the market) Exit: cease of production; the withdrawal of a firm from a market: surviving firms increase their share. Entry and exit is pervasive in various industries. Entrants and exiters tend to be smaller than established firms. Most entrants do not survive 10 years, but those who do will grow substantially. Conditions that encourage entry also foster exit. Implications for managers: when planning for future, account for entry. Entrants will either be greenfield enterprises or large diversifying firms: expect new ventures to fail quickly.
