CHAPTER1TO: The Theory of the Firm
CHAPTER10: The Theory of the Firm
Section 1: Introduction (1)The Break-Even Model a Associated with Accountancy a To find the level of output where profits are zero a no clear company objective in the break-even model a the break-even model assumes a constant variable cost per unit irrespective of the number of units that are made
Section 1 : Introduction ◼ (1) The Break-Even Model ❑ Associated with Accountancy ❑ To find the level of output where profits are zero ❑ No clear company objective in the break-even model ❑ The break-even model assumes a constant variable cost per unit irrespective of the number of units that are made
(2)The Linear Programming model Lp) a associated with management sciences a to have a very specific objective - for example to maximise profits a decision variables-- how many units of each product should be made in order to achieve the stated objective a LP technique then finds the optimal values of the relevant decision variables
◼ (2 ) The Linear Programming Model (LP) ❑ associated with Management Sciences ❑ to have a very specific objective - for example , to maximise profits ❑ decision variables -- how many units of each product should be made in order to achieve the stated objective. ❑ LP technique then finds the optimal values of the relevant decision variables
Section 2: The economist' s model Assumption a company is seen as producing one product only a company is to MAXIMISE PROFITS decision variable-- the level of product output To find the level of output, q the DECISION VARIABLE that maximises profit( the OBJECTIVE FUNCTION ) within the particular confines of the revenue and cost conditions which it faces
Section 2 : The Economist's Model ◼ Assumption ❑ company is seen as producing one product only ❑ company is to MAXIMISE PROFITS ❑ decision variable-- the level of product output ◼ To find the level of output , q ( the DECISION VARIABLE ) , that maximises profit ( the OBJECTIVE FUNCTION ), within the particular confines of the revenue and cost conditions which it faces
[A] Revenue Considerations - (a demand curve for its own single product p=500-2 How wide should the quantity (horizontal) axis be Should we have a range of g from 0-10? or g from 0-50? or g from 0-100? or g from0-700? or WHATEVER 0<-q—>250
[A] Revenue Considerations ◼ (a) demand curve for its own single product ◼ p = 500-2q ◼ How wide should the quantity (horizontal) axis be ? Should we have a range of q from 0-10 ? or q from 0-50 ? or q from 0 - 100 ? or q from 0 - 700 ? or WHATEVER ? ◼ 0 <— q —> 250