MGT 621 – Microeconomics
4. Theory of the Firm
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Lecture Notes (Overheads Used In Class)
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.