CHAPTER 3
Elementary Economic Analysis
3.1 THEORY OF THE FIRM
The consumers and producers are the two sides of the markets. This chapter will discuss both consumers as well as producer side of the market. The firm is the basic unit of activity on the production side of the market. The task of the firm is to take inputs and turns them into goods/commodities. In the neoclassical model, the objective of the firm is to maximize profits. That is, the firm chooses the production plan from all feasible plans that maximizes the profit earned. Because of this as in the consumer model, prices are exogenous in the neoclassical production model. Firms are unable to affect the prices of either their inputs or their outputs.
Our study of production is divided ...
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