Firm behavior and market structure
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Profit = Total Revenue - Total Cost
- Accounting versus economic profits; Normal profit
Zero economic profits in this situation - total revenues minus total costs, with opportunity costs included (thus, making 0 economic profits means you can't make any more doing anything different). Companies earning 0 economic profits are said to be earning normal profits, because they're earning a return equlivalent to their opportunity cost. Contrast economic profit with accounting profit, where that is calculating by total revenues minus total cost, not including the opportunity costs. Profit means economic profit throughout.
- Profit maximization: MR=MC rule
See this by taking derivatives.
Need 1) Many sellers; 2) standardized product; 3) firms to be price takers; 4) free entry and exit. [Price takers: sellers accept the market price as given and can sell all they want at that price.] Example: agricultural goods.
- Short-run supply and shut-down decision
- Firm and market behaviors in short-run and long-run equilibria
- Efficiency and perfect competition
- Monopoly
- Sources of market power
- Profit maximization
- Inefficiency of monopoly
- Price discrimination
- Oligopoly
- Interdependence, collusion, and cartels
- Game theory and strategic behavior
- Monopolistic competition
- Product differentiation and role of advertising
- Profit maximization
- Short-run and long-run equilibrium
- Excess capacity and inefficiency