Chapter 6
The Core of Capitalism: The Profit-Maximizing Firm
IN THIS CHAPTER
Understanding why firms choose to maximize profits
Deconstructing a firm’s cost structure
Determining a firm’s profit-maximizing output level
Seeing how costs determine a firm’s supply curve
Understanding how firms react to losing money
Business enterprises make nearly everything you eat, drink, wear, drive, ride, fly, and use. So, naturally, economists devote a lot of effort to studying how businesses behave.
In this chapter, I show you how economists model a firm that’s a member of a competitive industry, meaning a firm that’s just one of many firms competing against each other for your business. It’s essential to understand how firms behave in competitive industries for two reasons:
- Most firms in the real world face a lot of competition because they’re members of either perfectly competitive industries (which I talk about in this chapter) or monopolistically competitive industries (which I discuss in ...
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