• Share
  • Email
  • Embed
  • Like
  • Save
  • Private Content
Theory of the firm
 

Theory of the firm

on

  • 803 views

 

Statistics

Views

Total Views
803
Views on SlideShare
754
Embed Views
49

Actions

Likes
1
Downloads
15
Comments
1

2 Embeds 49

http://12nakaka.wordpress.com 48
https://12nakaka.wordpress.com 1

Accessibility

Categories

Upload Details

Uploaded via as Microsoft PowerPoint

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel

11 of 1 previous next

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
  • Slide 9 is incorrect, youve illustrated a Monopolistic market diagram not a Perfect Competition
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Theory of the firm Theory of the firm Presentation Transcript

    • Theory of the Firm
      Kanako Nakagawa
    • Costs
      Fixed costs: costs of production that do not change with the level of output.
      Variable costs: costs of production that vary with the level of output.
      Total costs: total costs of producing a certain level of output. [ Fixed costs + Variable costs ]
      Average costs: average cost of production per unit. [ Total cost / Quantity produced ]
      Marginal costs: additional cost of producing an additional unit of output.
    • Short-run cost curve
      MC
      ATC
      Cost ($)
      AVC
      Lowest points
      Output
      Shape of curves are explained by the concept of diminishing returns.
    • Time
      Short Run: the period of time in which at least one factor of production is fixed – the production stage.
      Long Run: the period of time in which all factors of production are variable.
    • Laws
      Law of diminishing average returns: as extra units of a variable factor are applied to a fixed factor, the output per unit of the variable factor will eventually diminish.
      Law of diminishing marginal returns: as extra units of a variable factor are applied to a fixed factor, the output from each additional unit of the variable factor will eventually diminish.
    • Scales
      Economies of scale: any fall in long-run unit (average) costs that come about as a result of a firm increasing its scale of production (output).
      Diseconomies of scale: any increase in long-run unit (average) costs that come about as a result of a firm increasing its scale of production (output).N
    • Revenues
      Total revenue: the aggregate revenue gained by a firm from the sale of a particular quantity of output. [ Price x quantity sold ]
      Average revenue: total revenue received / number of units sold. Price usually = average revenue.
      Marginal revenue: the extra revenue gained from selling an additional unit of a good or service.
    • Profits
      Normal profits: the amount of revenue needed to cover the total costs of good or service.
      Abnormal profits: any level of profit that is greater than that required to ensure that a firm will continue to supply its existing good or service. (Amount of revenue > total costs of production)
    • Normal Profits in Perfect Competition
      Cost/Price ($)
      MC
      AC
      P/C
      D=AR
      0
      Output
      MR
      In normal profits, Price=Cost
    • Abnormal Profits
      Cost/Price ($)
      MC
      AC
      P
      C
      D=AR
      0
      Output
      MR
    • Output
      Profit-maximizing level of output: the level of output where marginal revenue = marginal cost.
      Shut-down price: price where average revenue is equal to average variable cost.
      Break-even price: price where average revenue is equal to average total cost. Below this price, the firm will shut down in the long run.