SHORT REVISION OF THE TOPIC

1. THEORY OF FIRM

2.  A firm is an organization which produce and
sells goods and services to make profit.
 Examples = company, partnership, business ,
corporations etc.

3.  A theory which attempts to explains how firm
behave under different market conditions
 Collection of resources that transformed into
products demanded by the consumer
 Relationship of the firm with the markets

4.  Maximization of profit
 Maximization of sales
 Long run survival
 Maximization of managers utility functions
 Production and cost factors
 Avoidance of risk factors

5.  Profit maximization is the short run or long
run process by which firm determines price
and output level to have return in greatest
profit

6.  Short run = some factors of production
remains fixed and they do not reduced
 Long run =all the factors of production are
variable

8.  The difference between TR and TC

9. The profit maximization
formula
MC = MR
Marginal Cost is the increase in cost
by producing one more unit of the
good.
Marginal Revenue is the change in
total revenue as a result of changing
the rate of sales by one unit.
Marginal Revenue is also the slope of
Total Revenue.
Profit = Total Revenue – Total
Costs
Therefore, profit maximization

14.  Preventing entry of competitors
 Maintaining customer goodwill
 To stand in the market
 To make public image

15.  Profits uncertain
 No perfect knowledge
 Firms do not bother about mr and mc
 Static theory
 Not applicable to oligopoly
 Various other objectives