Micro Economics (The Theory of The Firm Under Perfect Competition)
This Topic Covers The Following Topics.
- Characteristics of Perfect Competition
- Definition and assumptions of a perfectly competitive market.
- Features such as large number of buyers and sellers, homogenous products, free entry and exit, and perfect knowledge.
- Revenue Concepts in Perfect Competition
- Total Revenue (TR), Average Revenue (AR), and Marginal Revenue (MR).
- Relationship between AR, MR, and Price in perfect competition.
- Revenue curves and their implications.
- Profit Maximization Conditions
- Short-run and long-run profit maximization.
- Marginal Revenue equals Marginal Cost (MR = MC) rule.
- Analysis of normal profit, supernormal profit, and loss scenarios.
- Cost Concepts and Curves
- Total Cost (TC), Average Cost (AC), Average Variable Cost (AVC), and Marginal Cost (MC).
- Short-run cost curves: SAC (Short-run Average Cost), SMC (Short-run Marginal Cost).
- Long-run cost curves: LRAC (Long-run Average Cost), LRMC (Long-run Marginal Cost).
- U-shaped cost curves and their economic interpretation.
- Short-run and Long-run Supply Curves
- Determinants of the firm’s short-run supply curve based on the MC curve.
- Factors affecting the long-run supply curve (LRSC).
- Shutdown point and break-even analysis in short-run and long-run contexts.
- Impact of Technological Progress and Entry Barriers
- Effects of technological advancements on LRAC and production decisions.
- Analysis of entry barriers and their impact on market stability and supply curves.
- Elasticity in Perfect Competition
- Price elasticity of supply in a perfectly competitive market.
- Elastic and inelastic supply responses and their implications.
- Diseconomies and Economies of Scale
- Concept and graphical representation of economies and diseconomies of scale.
- How firms achieve economies or suffer from diseconomies over time.
- Shutdown and Break-even Points
- Calculation and significance of shutdown points (short-run and long-run).
- Break-even analysis and its critical importance for firm’s decisions.
- Market Equilibrium and Firm’s Decisions
- Equilibrium in perfect competition.
- Decision-making at MR = MC, and the implications for production, pricing, and profits.
- Dynamic Adjustments in Perfect Competition
- How firms adjust production in response to changes in market demand and cost conditions.
- Implications of short-run adjustments on long-run equilibrium.
- Critical Analysis of Firm Behavior in Perfect Competition
- Strategic production decisions in varying cost and revenue scenarios.
- Evaluating firm sustainability based on cost and revenue structures.
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