Equilibrium with capacity-constrained firms: A classroom experiment

Gayane Barseghyan and Aram Grigoryan

The Journal of Economic Education, 2019, vol. 50, issue 2, 129-141

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.

Date: 2019
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DOI: 10.1080/00220485.2019.1582382

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