COSTS OF
PRODUCTION
Chapter # 13 (Mankiw)
Firm behaviour and organization of the industry.
REVIEW
•Section # 1: How markets work: (economic story of buyers and sellers)
•Tools of demand and supply
•To attain equilibrium price and quantity.
•Laissez-faire (free markets without any intervention to determine price and quantity)
•Outside intervention (price controls and taxes) in a market
•Section # 2: Markets and welfare:
•WELFARE ECONOMICS: benefit to the participants via ‘consumer’ & ‘producer surplus’
•Application # 1: under laissez-faire conditions
•Application # 2: welfare with taxes
INDUSTRIAL ORGANIZATION
In depth analysis of “Firm behaviour”
•Economy consists of thousand of firms —- that produce goods and services (G&S)
•Some firms produce cars other produce medicines and some provide education (SP Jain)
•Some firms are large (cold-storage/fair price) & others are small (local grocery stores)
•Supply curve: depicts firm’s production decisions (Law of supply)
