- You should understand that the models that comprise the traditional theory of the firm are based upon the assumption that firms aim to maximise profits.
- You need to understand the MR=MC profit maximising rule.
-You should also understand the satisficing principle and know that firms have a variety of other possible objectives.
THE DIVORCE OF OWNERSHIP FROM CONTROL
- You should understand the reasons for the separation of ownership from control in modern industrial economies and be able to discuss its significance for the conduct and performance of firms.
THE LAW OF DIMINISHING RETURNS & RETURNS TO SCALE
- You should understand the difference between the short run and the long run and between the marginal returns (or product) of a variable factor of production in the short run and returns to scale in the long run.
- You should appreciate how productivity and factor prices affect firms’ costs of production and the choice of factor inputs.
FIXED & VARIABLE COSTS, MARGINAL, AVERAGE & TOTAL COSTS, SHORT-RUN & LONG-RUN COSTS
- You should be able to calculate a firm’s costs and draw cost curves from
- You should understand the reasons for the shape of cost curves and
be able to interpret how costs affect decision-making by firms.
ECONOMIES & DISECONOMIES OF SCALE
- You should understand the concept of the minimum efficient scale of production and its implications for the structure of an industry and barriers to entry.
- You should understand how technological change and technical progress are affecting the structure of markets and the production and consumption of goods and services.
- You should understand the impact of invention, innovation and technological change upon a firm’s methods of production, its efficiency and its cost structure.
TOTAL, AVERAGE & MARGINAL REVENUE
- You should be able to calculate a firm’s revenue from given data and be able to draw and interpret revenue curves.
- You should understand the reasons for the shape of revenue curves and be able to interpret how revenue affects decision-making by firms.