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0 THEORY OF FIRMS
Pricing decisions depends on environment
in which firm operates. It depends on the
market structure.
Four types of market structure:
1. Perfect Competition
2. Monopoly
3. Monopolistic competition
4. Oligopoly
PERFECT COMPETITION
Characteristics:
a)
Many small sellers and each firm produces a
small unit of output. A firm is a price-taker.
b)
Many small buyers-no buyer is Able to
influence price
c)
Product is standardized.
d)
Easy entry and exit.
D=MR
D
Qty
Qty
MC
D=AR=MR
Q*
Qty