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THEORY OF FIRM
 A firm is an organization which produce and
sells goods and services to make profit.
 Examples = company, partnership, business ,
corporations etc.
 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
 Maximization of profit
 Maximization of sales
 Long run survival
 Maximization of managers utility functions
 Production and cost factors
 Avoidance of risk factors
 Profit maximization is the short run or long
run process by which firm determines price
and output level to have return in greatest
profit
 Short run = some factors of production
remains fixed and they do not reduced
 Long run =all the factors of production are
variable
 The difference between TR and TC
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
 Preventing entry of competitors
 Maintaining customer goodwill
 To stand in the market
 To make public image
 Profits uncertain
 No perfect knowledge
 Firms do not bother about mr and mc
 Static theory
 Not applicable to oligopoly
 Various other objectives

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Theory of frims cllg presentation

  • 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
  • 7.
  • 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
  • 10.
  • 11.
  • 12.
  • 13.
  • 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