1. The difficulties involved in the concept of the short-period supply curve of an industry under imperfect competition are generally known. Such a supply curve depends on how the demand curves for the product of a firm shift when the general demand or the price of prime factors change; without the knowledge of the exact nature of this shift, therefore, nothing definite can be said about the supply curve.
Some light may be thrown upon this problem, I think, if we clearly determine what is meant by a given state of market imperfection and if we understand by the supply curve that drawn under this given state of market imperfection. Changes in the imperfection of the market can then be represented as shifts of the supply curve.
We consider initially only pure imperfect competition: we assume the number of firms to be so great that the problem of oligopoly does not come into the picture; we assume, moreover, that the entrepreneur knows the demand curve for his product and his marginal-cost curve; finally, we leave aside selling costs. All these assumptions will be removed in the next section.
2. Let us assume n firms in the industry whose outputs we denote by 01, 02 ⋯ 0k ⋯ 0n, and prices by p1, p2 ⋯ pk ⋯ pn. The average
price p + ̄ is the weighted average of pk with outputs taken as weights.
Our definition of a given state of market imperfection is as follows:
The market imperfection is given if the elasticity of demand for the
product of each firm ek is a determinate function of the ratio of its price pk to the average price p + ̄ or:
the shape of the function εk representing the state of market imperfection. If the shape of the function εk changes so that to the same pk/p + ̄