Nature of the Firm: Notes
05/08/2012
Last topic: THEORY OF THE FIRM
Topic 5
Market Structures (I)
Nature of the firm Theory of production Fixed v/s Variable factors Time periods Product concepts – TR, AR, and MR Product curves & Economic intuition Theory of costs – Short Run TC, FC and VC (AFC, AVC and SAC) SAC and SMC Cost curves & Economic intuition Relationship between product and cost curves Theory of costs – Long Run TC LAC and LMC Cost curves & Economic intuition Economies and Diseconomies of scale
Theory of Supply Profit maximization Accountant v/s economist Profit concepts Revenue Concepts – TR, AR, MR Profit max by TR and TC Profit max by MR and MC MR and MC graphical analysis Firm’s LR output decision Firm’s SR output decision Isocost and Isoquants (LR) Isoquants – features, MRTS Isocost – definition, slope, changes Cost minimization and producer equilibrium
5 August 2012
1
2
This topic
• Market Structures • Perfect Competition • Monopoly
6a: PERFECT COMPETITION
Defining features of mkt structure Recap of costs Features – many firms, identical product, perfect and complete info, free entry and exit in LR Demand and Revenue
3
Industry v/s firm Profit max conditions Should firm produce at all? Firm’s equilibrium in SR Diagrams – marginal, total Firm’s equilibrium in LR
4
Industry v/s Firm
• Industry set of all firms making the same products • Output of industry sum of outputs of its firms • Firm 1 unit!
Perfect Competition
MARKET STRUCTURES
5
6
ECON1194/Topic 5 - Market Structures (I)
1
05/08/2012
Market Structures
Market structure features that affect behaviour and performance of firms in an industry 4 defining characteristics:
◦ The size and number of buyers and sellers/firms in the industry ◦ The nature of the product – identical or differentiated ◦ Information structure (buyers – price and quantity and sellers – technology and input costs) ◦ Entry or Exit condition (barriers?)
7
Last topic: THEORY OF THE FIRM
Topic 5
Market Structures (I)
Nature of the firm Theory of production Fixed v/s Variable factors Time periods Product concepts – TR, AR, and MR Product curves & Economic intuition Theory of costs – Short Run TC, FC and VC (AFC, AVC and SAC) SAC and SMC Cost curves & Economic intuition Relationship between product and cost curves Theory of costs – Long Run TC LAC and LMC Cost curves & Economic intuition Economies and Diseconomies of scale
Theory of Supply Profit maximization Accountant v/s economist Profit concepts Revenue Concepts – TR, AR, MR Profit max by TR and TC Profit max by MR and MC MR and MC graphical analysis Firm’s LR output decision Firm’s SR output decision Isocost and Isoquants (LR) Isoquants – features, MRTS Isocost – definition, slope, changes Cost minimization and producer equilibrium
5 August 2012
1
2
This topic
• Market Structures • Perfect Competition • Monopoly
6a: PERFECT COMPETITION
Defining features of mkt structure Recap of costs Features – many firms, identical product, perfect and complete info, free entry and exit in LR Demand and Revenue
3
Industry v/s firm Profit max conditions Should firm produce at all? Firm’s equilibrium in SR Diagrams – marginal, total Firm’s equilibrium in LR
4
Industry v/s Firm
• Industry set of all firms making the same products • Output of industry sum of outputs of its firms • Firm 1 unit!
Perfect Competition
MARKET STRUCTURES
5
6
ECON1194/Topic 5 - Market Structures (I)
1
05/08/2012
Market Structures
Market structure features that affect behaviour and performance of firms in an industry 4 defining characteristics:
◦ The size and number of buyers and sellers/firms in the industry ◦ The nature of the product – identical or differentiated ◦ Information structure (buyers – price and quantity and sellers – technology and input costs) ◦ Entry or Exit condition (barriers?)
7