Chapter 8

Production and cost in the short run.                                                                 

Production is the creation of goods and services from resources e.g. labour,raw materials etc. There are several basic concepts of production theory; one is production cost which is a schedule showing the maximum amount of output produced from any specified set of inputs, second is variable proportions standard this is production in which a given level of output can be produced with more than one outputs, third is the fixed proportion productions which is only one ratio of input is used to produce goods. Inputs are considered variable or fixed depending on how readily their usage can be changed, we also have short run which is a life span during which an input is in a fixed input and long run which allows fixed inputs to become variable inputs.

 Fixed inputs are sunk cost this meaning this means that once an input is purchased the company cannot recover it if it wishes to lay off while variable cost are avoidable cost meaning the firm can recover if it doesn't wish to employ. Inputs are considered variable or fixed depending on how readily their usage can be changed, we also have short run which is a life span during which an input is in a fixed input and long run which allows fixed inputs to become variable inputs.There is the short run production which changes in the variable labor input can change the level of output once capital is fixed, in the short run the capital is fixed, there are also marginal products where the law of diminishing marginal products as usage of variable input increases, other inputs held constant, a point is reached beyond which its marginal products of the variable inputs decreases

Chapter 11

Managerial decisions in competitive markets

The structure of the market in this case is what goes on to influence the decision that the manager will make on behalf of the company in terms of the price and the output decisions that have to be made. It becomes clear that the main prospectus under which a company runs on is the basis that there is the conception that it is run to reduce a loss or on the other had in maximization of a negative loss. 

The break-even point of any firm is determined as the point where the firms total revenue goes on to equal it's total cost and the firm earns a null amount in profit terms. A firm can be able to make an earning out of long term investment if the long run average cost remains at a higher notch. However, the greater profit margins are experienced when the marginal revenue goes in to equal the marginal cost. There are some key steps into finding the profit maximisation steps and the level of profit of a competitive company: 1. Forecasting the relevant price of the commodity, 2. Estimate average variable cost and the marginal cost, 3. Check the shutdown rule, 4. Find the output level P= SMC, 5. And finally compute the total profit or the loss that the firm has accrued

Chapter 12

Managerial decisions for firms with market power

Market power in this case goes on to be identified as the ability of a firm to raise the price of the commodities it is selling without losing the total aggregate sales. This becomes the same case when dealing with monopolies, monopolistic competitors and also Oligopolies. In a bid to be able to measure the amount of market power that a certain firm has dominance over the other, there are some factors. This is inversely directed to the extent of the demand of the commodity and the availability of close substitutes within the same market that the commodity serves

. This becomes the case if there is less elasticity in terms of the market demand, then this means that there is a greater degree of market power. lerner index goes on to measure proportionate amount by which the price goes on to exceed the marginal cost. In the case where consumers go ahead to view two different commodities as substitutes then the cross price elasticity of demand is rooted as being positive

. This therefore goes to explain the reason for the basmrrier of new firms to the market. This is because e they create substitute to the products which will go further to reduce the market power of the firm. In the case that there are new firms that find their way to the market, the loyalty of the customers is what keeps the firm in maintainable of its power. It therefore becomes clear that a firm can only remain to maintain its market power by creating a barrier to the entry of other firms in the market

Chapter 13

Strategic decision making in Oligopoly Market 

Oligopoly of markets goes on to take into account the basis where there is the interdependence of markets on the basis of profit margins. In this condition the determinant is a small firm that all moves that the moves that the other companies have involved affect the revenue of the other firms.. what goes I to complete conception is the fact that in this case we are definitely dealing with rivals. In a bid to be able to emerge top in a competitive environment it pertains that strategic moves and behaviours be implemented. 

There is the concept of the game theory, where decision making play is what is key. Additionally there is the ideology of the dominant strategies that fall into play. This protects the firm, in that, despite the moves that are made by the rival competitor the firm still remains stable and thriving. In the concept of the dominant strategy equilibrium, what happens is the basis where we have all the competitors making and coming up with dominant strategies but one can be predicted quite openly. 

There is the basis of the Nash equilibrium, in this case the manager is stipulated to formulate the best strategy taking into consideration the move the counterparts are willing to make. Nash equilibrium can occur without dominant and dominated strategies whatsoever. There is also sequential decisions where one company let's the other make the decision first then it can strategize and be able to make its decision. This would actually mean that it is up to the manager to preview the future before making any decisions that would impact the firm.