2.3 Theory of the Firm
This is a Higher Level topic only.
| Cost theory | ||
| Types of costs: fixed costs, variable costs (distinction between short-run and long-run) | ||
| Total, average and marginal costs | ||
| Accounting cost + opportunity cost = economic cost | ||
| Short-run | ||
| Law of diminishing returns | 1 | http://opengecko.com/economics/output-or-product-in-the-short-run/ |
| Total product, average product, marginal product | 1 | http://opengecko.com/economics/output-or-product-in-the-short-run/ |
| Short-run cost curves | 2 | http://opengecko.com/economics/short-run-cost-curves/ |
| Long-run | ||
| Economies of scale | http://opengecko.com/economics/the-long-run-cost-curves-economies-and-diseconomies/ | |
| Diseconomies of scale | http://opengecko.com/economics/the-long-run-cost-curves-economies-and-diseconomies/ | |
| Long-run cost curves | http://opengecko.com/economics/the-long-run-cost-curves-economies-and-diseconomies/ | |
| Revenues | ||
| Total revenue | 3 | http://opengecko.com/economics/revenues-total-marginal-and-average/ |
| Marginal revenue | 3 | http://opengecko.com/economics/revenues-total-marginal-and-average/ |
| Average revenue | 3 | http://opengecko.com/economics/revenues-total-marginal-and-average/ |
| Profit | ||
| Distinction between normal (zero) and supernormal (abnormal) profit | 4 | http://opengecko.com/economics/profit/ |
| Profit maximization in terms of total revenue and total costs, and in terms of marginal revenue and marginal cost |
4 | http://opengecko.com/economics/profit/ |
| Profit maximization assumed to be the main goal of firms but other goals exist (sales volume maximization, revenue maximization, environmental concerns) | 4 | http://opengecko.com/economics/profit/ |
| Perfect competition | 6 | http://opengecko.com/economics/perfect-competition/ |
| Assumptions of the model | 6 | http://opengecko.com/economics/perfect-competition/ |
| Demand curve facing the industry and the firm in perfect competition | 6 | http://opengecko.com/economics/perfect-competition/ |
| Profit-maximizing level of output and price in the short-run and long-run | 6 | http://opengecko.com/economics/perfect-competition/ |
| The possibility of abnormal profits/losses in the short-run and normal profits in the long-run | 6 | http://opengecko.com/economics/perfect-competition/ |
| Shut-down price, break-even price | 6 | http://opengecko.com/economics/perfect-competition/ |
| Definitions of allocative and productive (technical) efficiency | 6 | http://opengecko.com/economics/perfect-competition/ |
| Efficiency in perfect competition | 6 | http://opengecko.com/economics/perfect-competition/ |
| Monopoly | ||
| Assumptions of the model | 7 | http://opengecko.com/economics/monopoly/ |
| Sources of monopoly power/barriers to entry | 7 | http://opengecko.com/economics/monopoly/ |
| Natural monopoly | 7 | http://opengecko.com/economics/monopoly/ |
| Demand curve facing the monopolist | 7 | http://opengecko.com/economics/monopoly/ |
| Profit-maximizing level of output | 7 | http://opengecko.com/economics/monopoly/ |
| Advantages and disadvantages of monopoly in comparison with perfect competition | 7 | http://opengecko.com/economics/monopoly/ |
| Efficiency in monopoly | 7 | http://opengecko.com/economics/monopoly/ |
| Monopolistic competition | ||
| Assumptions of the model | 8 | http://opengecko.com/economics/monopolistic-competition/ |
| Short-run and long-run equilibrium | 8 | http://opengecko.com/economics/monopolistic-competition/ |
| Product differentiation | 8 | http://opengecko.com/economics/monopolistic-competition/ |
| Efficiency in monopolistic competition | 8 | http://opengecko.com/economics/monopolistic-competition/ |
| Oligopoly | ||
| Assumptions of the model | 9 | http://opengecko.com/economics/oligopoly/ |
| Collusive and non-collusive oligopoly | 9 | http://opengecko.com/economics/oligopoly/ |
| Cartels | 9 | http://opengecko.com/economics/oligopoly/ |
| Kinked demand curve as one model to describe interdependent behaviour | 9 | http://opengecko.com/economics/oligopoly/ |
| Importance of non-price competition | 9 | http://opengecko.com/economics/oligopoly/ |
| Theory of contestable markets | 9 | http://opengecko.com/economics/oligopoly/ |
| Price discrimination | ||
| Definition | 10 | http://opengecko.com/economics/price-discrimination/ |
| Reasons for price discrimination | 10 | http://opengecko.com/economics/price-discrimination/ |
| Necessary conditions for the practice of price discrimination | 10 | http://opengecko.com/economics/price-discrimination/ |
| Possible advantages to either the producer or the consumer | 10 | http://opengecko.com/economics/price-discrimination/ |
