ECONOMICS : MICRO ECONOMICS THEORY III

OLIGOPOLY We have so far investigated two important forms of market structures: pure competition, where there are typically many small competitors and pure monopoly, where there is only one large firm in the market. However, much of the world lies between these two extremes. Often there are a number of competitors in the market, but not too many as to regard each of them as having a negligible effect on price. This is the situation known as oligopoly.

In this lesson, the consumer is depicted as an agent who allocates his/her income in such a manner that maximum utility is derived by consuming goods and services. A consumer who seeks to maximize utility subject to a given budget also succeeds in minimizing expenditure subject to achieving highest possible utility

In this lesson, the consumer is depicted as an agent who allocates his/her income in such a manner that maximum utility is derived by consuming goods and services. A consumer who seeks to maximize utility subject to a given budget also succeeds in minimizing expenditure subject to achieving highest possible utility

PROPERTIES OF THE PROFIT FUNCTION (i) The profits are non-negative i.e. a producer never accepts negative profits in the long run (ii) Its non-decreasing in output price, if p and p'are two output prices and that p  p' the profits evaluated:  p,w   p'w (iii) The profit function is non-increasing in input prices i.e. if w and w' are two vectors or sets of input prices and w  w' , then   p,w   pw'

We can use exclusively the cost phenomena to reconstruct and to study the properties of the technology. i.e. we can describe the technology entirely in terms of the cost function. The implication here of being able to describe the technology using the cost function is that the specification of a well cost function Cw, yis equivalent to the specification of a well behaved production function f x. We could therefore say that the cost function is a sufficient statistics for the ...

In this lesson, we have defined and learnt the properties of a production function. We have also learnt the different types of production functions and how under certain assumptions, the CES type may give rise to any other specific production function