2.3+-+Theory+of+the+Firm

=2.3 – Theory of the Firm=

__**Cost Theory**__

 * Types of costs: fixed, variable -


 * Short run vs. long run -


 * Total, average and marginal costs -


 * Accounting costs + opportunity costs = economic costs -

__**Short Run**__

 * Law of diminishing returns -


 * Total product, average product, marginal product -


 * Short run cost curves -

__**Long Run**__

 * Economies of scale -


 * Diseconomies of scale -


 * Long run cost curves -

__**Revenues**__

 * Total revenue -


 * Marginal revenue -


 * Average revenue -

**__Profit__**

 * Distinction between normal (zero) and supernormal (abnormal) profit -


 * Profit maximization in terms of total revenue and total costs, and in terms of marginal revenue and marginal cost -


 * Profit maximization assumed to be the main goal of firms but other goals exist -


 * Sales volume maximization -


 * Revenue maximization -


 * Environmental concerns -

__**Perfect Competition**__

 * Assumption of the model -


 * Demand curve facing the industry and the firm in PC -


 * Profit maximizing level of output and price in the SR and LR -


 * The possibility of supernormal profits/losses in the SR and normal profits in the LR -


 * Shut down price, break even price -


 * Definitions of allocative and productive (technical) efficiency -


 * Efficiency in PC -

__**Monopoly**__

 * Assumptions of the model -


 * Sources of monopoly power/barriers to entry -


 * Natural monopoly -


 * Demand curve facing the monopolist -


 * Profit maximizing level of output -


 * Advantages and disadvantages of monopoly in comparison with PC -


 * Efficiency in monopoly -

__**Monopolistic competition**__

 * Assumptions of the model -


 * SR and LR equilibrium -


 * Product differentiation -


 * Efficiency in monopolistic competition -

__ **Oligopoly**__

 * Assumptions of the model -


 * Collusive and non-collusive oligopoly -


 * Cartels -


 * Kinked demand curve as one model to describe interdependent behavior -


 * Importance of non-price competition -


 * Theory of contestable markets -

**__Price Discrimination__**

 * Definition -


 * Reasons for price discrimination -


 * Necessary conditions for the practice of price discrimination -


 * Possible advantages to either the producer or consumer -