Can anyone please answer this economics question? what do CC curve and PP curve stand for? thanks?

Question

Can anyone please answer this economics question? what do CC curve and PP curve stand for? thanks?

Answer 1

Consider the following model:

• Each firm has a measure of fixed cost F and constant marginal cost c

• Average cost can therefore be described as an increasing function of the number of firms, for a given overall production volume (CC curve)

• Total sales in the market is S

• n is the number of firms

• The equation for the CC curve is AC = c + nF/S

• There are n firms on the market, selling similar but differentiated products

• The individual firm therefore faces a downward-sloping demand curve with the coefficient of b

• Average price can be described as a decreasing function of the number of firms (PP curve)

• The equation for the PP curve is P = c + 1/(bn)