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- 1. Theory of the Firm<br />Section 2.3 HL<br />
- 2. 2.3 A Tale of Two Firms<br />Apple is currently the most popular and well loved firm in the US while JAL, to the dismay of the Japanese, recently declared itself bankrupt with 2.3 Trillion Yen in debt. <br />How can one firm be so successful while fail so spectacularly?<br />
- 3. 2.3 A Tale of Two Firms and Theory of the Firm<br />What advice could an economist give Apple to help it stay so successful and what advice could they give JAL so that it once again becomes the most successful airline in Asia. <br />
- 4. Crucial Questions All Firm Face <br />
- 5. Theory of the Firm Defined<br />
- 6. Theory of the Firm The Goal<br />Provide advice <br />about the following:<br />The best price<br />The best output<br />The most profit<br />To breakeven price<br />The shutdown price<br />
- 7. Theory of the Firm<br />X<br />
- 8. Cost Theory<br />
- 9. Types of Costs: Fixed and Variable Costs<br />
- 10. Costs and Output (Product)<br />Variable Costs (VC)are the focus as Fixed Costs (FC)cannot change in the short term.<br />
- 11. Ways to Measure Output<br />
- 12.
- 13. The Total Product Curve<br />
- 14. Average and Marginal Product Curves<br />
- 15. Diminishing Average Returns<br />
- 16. Diminishing Marginal Returns<br />
- 17.
- 18. Total Costs<br />
- 19. Average Costs<br />
- 20. Marginal Costs<br />
- 21. TFC, TVC and TC<br />
- 22. Cost Curves<br />
- 23. LRAC A firm altering all its factors to meet increasing demand<br />
- 24. Economies and Diseconomies of Scale<br />
- 25. Economies and Diseconomies of Scale<br />
- 26. Economies of Scale<br />
- 27. Economies of Scale<br />
- 28. Revenue Theory<br />
- 29. Total Revenue<br />X<br />=<br />
- 30. Total Revenue<br />X<br />=<br />
- 31. Marginal Revenue<br />÷<br />=<br />
- 32. Revenue Curves<br />Example 1 Demand is perfectly elastic PED = Infinity<br />
- 33. Revenue Curves: Perfectly Elastic Demand<br />Price<br />D=AR=MR<br />5<br />Output<br />
- 34. Revenue Curves for Normal Demand Curves<br />
- 35. Profit Theory<br />
- 36. Accounting Profit<br />
- 37. Economic Profit<br />
- 38. Profit and Loss<br />Which firm is making a Profit, which is making and Abnormal Profit and which is making a loss? <br />
- 39. Profit and Loss<br />Abnormal Profit<br />Normal Profit<br />Loss <br />
- 40. What advice would you give these firms?<br />Shut Down Price and the Break Even Price <br />
- 41. Firm X should shut down as TR <TVC and TFC<br />Firm Y should continue production as TR >TVC.<br />Firm Z should continue to produce as TR >TVC<br />& part of its TFC<br />
- 42. Determining the Shut Down Price and the Break Even Price<br />
- 43. Shut Down Price<br />Break Even Price = P1 = ATC<br />
- 44. Profit Maximizing Level of Output<br />
- 45. Profit Maximizing Level of Output with Perfectly Elastic Demand<br />
- 46. Profit Maximizing Level of Output with Perfectly Elastic Demand<br />
- 47. Profit Maximizing Level of Output with Normal Demand<br />
- 48. Profit Maximizing Level of Output with Normal Demand<br />
- 49. Profit Maximizing Level of Output with Normal Demand<br />
- 50. Normal Profit Normal Demand<br />
- 51. Abnormal Profit Normal Demand<br />
- 52. Loss Normal Demand<br />
- 53. Is it always about profit?<br />
- 54. Profit, Sales and Revenue Maximization?<br />
- 55. Profit, Sales and Revenue Maximization?<br />
- 56. Profit, Sales and Revenue Maximization?<br />
- 57. Price Discrimination <br />
- 58. Definition<br />
- 59. Types of Price Discrimination<br />
- 60. Third Degree Discrimination<br />
- 61.
- 62. Pre-conditions for Price Discrimination<br />
- 63. Price Discrimination ExampleTotal Ticket Sales<br />
- 64. Price Discrimination ExampleAdult Tickets<br />
- 65. Price Discrimination ExampleAdult Tickets<br />
- 66. Price Discrimination Example<br />
- 67. Efficiency<br />
- 68. Productive Efficiency and Allocative Efficiency<br />
- 69. Productive Efficiency: Resources are not wasted<br />
- 70. Allocative Efficiency / Socially Optimum Level of Output<br />
- 71. Perfect Competition Versus Monopoly<br />
- 72. Perfect Competition Versus Monopoly<br />
- 73. Monopolies<br />
- 74. Competition & the Theory of Contestable Markets<br />
- 75. Efficiency<br />
- 76. Traditional Theories of Market Structure and Competition<br />Inverse Relationship<br />
- 77. Theory of Contestable Markets<br />Inverse Relationship<br />
- 78. Theory of Contestable Markets<br />
- 79. Theory of Contestable Markets<br />

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