Summary CORE Economy Chapter 7 - The Firm and Its Customers
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Course
Economic Principles 1
Institution
University Of Bristol (UOB)
Book
The Economy
This chapter covers the price firms are willing to set in order to maximise profits, as well as maximise the surplus they can achieve from the sales. It covers the effects of elasticities, and things which influence market power.
Ford was fairly big in 60’s but now are dwarfed by companies like Walmart and McDonalds.
Describiti productotn Ecotomies of scale
A firm’s costs depend on its scale of producion and the type of producion technology it
has.
Large firms can be more profitable than small firms because of technological and/or cost
advantages.
Dematd curve
The demand curve is downward sloping. To make pricing and producion decisions, managers also
need to know the demand for the firm’s product. Dematd curve = quanity that consumers will buy
at each price.
In theory, firms can esimate the
demand curve for their product by
surveying many consumers.
Isoprofit curve
(Ecotomic) Profit = Total revenue – Total costs (costs include the opportunity cost of capital)
Isoprofit curves show price-quanity combinaions that give the same profit.
The shape of a firm’s cost funcion afects the shape of their isoprofit curves.
Profit Maximisatot
The firm’s constrained opimisaion problem is analogous to the consumers from Unit r.
Dematd curve = Firm’s feasible fronier (slope = MRT)
Isoprofit curves = Firm’s indiference curves (slope = MRS)
Firms maximise profits by choosing the point where MRS = MRT
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