MGT 621 – Microeconomics


4. Theory of the Firm


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          Lecture Notes (Overheads Used In Class)

·       Lecture 4 – Slides



Reading (Preparation)

·       Pindyck/Rubinfeld, Chs. 6—8



Questions (Preparation)

·       What objectives other than profit maximization might a (rational) firm have?

·       Why could the current output of a firm depend on past and/or future inputs?

·       Explain why cost minimization is a necessary condition for profit maximization.

·       Which industries feature increasing returns to scale? Why are they often called “natural monopolies”?

·       Prove that the average cost is equal to the marginal cost at quantities where the marginal cost is extremal.


Background Reading (for future reference only)

·       Debreu, G. (1959) Theory of Value: An Axiomatic Analysis of Economic Equilibrium, Yale University Press, New Haven, CT; Ch. 3.

·       Panzar, J.C. (1989) “Technological Determinants of Firm and Industry Structure,” in: Schmalensee, R., Willig, R.D. (Eds.) Handbook of Industrial Organization, Vol. 1, North-Holland, Amsterdam, NL, pp. 3—59.