MGT 621 – Microeconomics
4. Theory of the Firm
Lecture Notes (Overheads Used In Class)
· Pindyck/Rubinfeld, Chs. 6—8
· 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.