1.5. Theory of the Firm and Market Structures (HL only)

Syllabus Content

Production and costs - Production in the short run: the law of diminishing returns; costs of production (economic costs); costs of production in the short run; production in the long-run (returns to scale) and costs of production in the long-run
Revenues - Total revenue, average revenue and marginal revenue
Profit - Economic profit (sometimes known as abnormal profit) and normal profit (zero economic profit occurring at the breakeven point)
Goals of firms - profit maximisation; alternative goals
Perfect Competition - assumptions of the model; revenue curves; profit maximisation in the short-run; profit maximisation in the long-run; shut-down price and break-even price & efficiency
Monopoly - assumptions of the model; barriers to entry; revenue curves; profit maximisation; revenue maximisation; natural monopoly; monopoly & efficiency; policies to regulate monopoly power and the advantages and disadvantages of monopoly compared with perfect competition
Monopolistic Competition - assumptions of the model; revenue curves; profit maximisation in the short-run; profit maximisation in the long-run; non-price competition; monopolistic competition & efficiency; Monopolistic competition compared with perfect competition and monopoly
Oligopoly - assumptions of the model; Game Theory; open/formal collusion; tacit/informal collusion; non-collusive oligopoly
Price Discrimination - Necessary conditions for the practice of price discrimination

Files to download

1.5 TOF costs.pptx

1.5 Theory of the Firm HL.pptx