Lecture_Microeconomics_Chapter7-1

Lecture_Microeconomics_Chapter7-1 - The Production Process:...

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7 The Production Process: The Behavior of Profit-Maximizing Firms
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THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS FIGURE 7.1 Firm and Household Decisions
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THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS Although Chapters 7 through 12 describe the behavior of perfectly competitive firms, much of what we say in these chapters also applies to firms that are not perfectly competitive. For example, when we turn to monopoly in Chapter 13, we will be describing firms that are similar to competitive firms in many ways. All firms, whether competitive or not, demand inputs, engage in production, and produce outputs. All firms have an incentive to maximize profits and thus to minimize costs. production The process by which inputs are combined, transformed, and turned into outputs.
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THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS Production Is Not Limited to Firms firm An organization that comes into being when a person or a group of people decides to produce a good or service to meet a perceived demand. Most firms exist to make a profit.
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THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS Perfect Competition perfect competition An industry structure in which there are many firms, each small relative to the industry, producing virtually identical products and in which no firm is large enough to have any control over prices. In perfectly competitive industries, new competitors can freely enter and exit the market. homogeneous products Undifferentiated products; products that are identical to, or indistinguishable from, one another.
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THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS FIGURE 7.2 Demand Facing a Single Firm in a Perfectly Competitive Market
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THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS All firms must make several basic decisions to achieve what we assume to be their primary objective—maximum profits. FIGURE 7.3 The Three Decisions That All Firms Must Make 1. How much output to supply 2. Which production technology to use 3. How much of each input to demand
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PROFITS AND ECONOMIC COSTS profit (economic profit) The difference between total revenue and total cost. profit = total revenue - total cost
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Lecture_Microeconomics_Chapter7-1 - The Production Process:...

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