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Equilibrium with capacity-constrained firms: A classroom experiment

Author

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  • Gayane Barseghyan
  • Aram Grigoryan

Abstract

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.

Suggested Citation

  • Gayane Barseghyan & Aram Grigoryan, 2019. "Equilibrium with capacity-constrained firms: A classroom experiment," The Journal of Economic Education, Taylor & Francis Journals, vol. 50(2), pages 129-141, April.
    • Handle: RePEc:taf:jeduce:v:50:y:2019:i:2:p:129-141
    DOI: 10.1080/00220485.2019.1582382
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