Equilibrium with capacity-constrained firms: A classroom experiment

The authors develop a two-stage classroom experiment to illustrate convergence to long-run equilibrium in a market where price-taking firms are capacity-constrained. Once equilibrium in the first stage is established, capacity constraints are introduced by imposing discontinuities in the fixed costs...

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Bibliographic Details
Published inThe Journal of economic education Vol. 50; no. 2; pp. 129 - 141
Main Authors Barseghyan, Gayane, Grigoryan, Aram
Format Journal Article
LanguageEnglish
Published Washington Routledge 03.04.2019
Taylor & Francis Inc
Subjects
capacity constraints
Class Activities
classroom game
College Instruction
Economics Education
Educational Games
Equilibrium
Experiments
Foreign Countries
Graduate Students
increasing market supply curve
Microeconomics
profit maximization
Undergraduate Students
Armenia
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Summary:The authors develop a two-stage classroom experiment to illustrate convergence to long-run equilibrium in a market where price-taking firms are capacity-constrained. Once equilibrium in the first stage is established, capacity constraints are introduced by imposing discontinuities in the fixed costs of several firms. The experiment demonstrates that this supply shock yields a higher market price and, under assumed parameterization, several higher-cost firms that otherwise are not able to survive in the long-run equilibrium enter the market and earn positive profits.
ISSN:0022-0485
2152-4068
DOI:10.1080/00220485.2019.1582382