What is the Theory of the Firm under Perfect Competition?
In the previous chapter, we had learnt concepts that are associated with an enterprise’s manufacturing procedure and cost curves. How does an enterprise determine how much to manufacture?
The answer to this question is by no means uncontroversial or simple. The answer is based on an analytic, if unreasonable, presumption about enterprise traits – an enterprise, we maintain, is a merciless profit maximiser.
So, the amount that an enterprise manufactures and sells in the marketplace is that which maximises its worth and profit. We can also presume that the enterprise sells whatever it manufactures so that the ‘output’ and the number of goods sold are often used correspondingly.
The substructure of this chapter is as follows: we first set up and analyse the profit maximisation issue of an enterprise in detail. Then, we procure an enterprise’s supply curve. The supply curve depicts the degrees of end results that an enterprise picks to manufacture at different market cost prices.
Finally, we study how to aggregate (average) the supply curves of individual enterprises and procure the market supply curve.
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