In microeconomics Microeconomics is a branch of economics that studies how the individual parts of the economy, the household and the firms, make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold. Microeconomics examines how these decisions and behaviours affect the supply and demand for goods and, industrial organization Industrial organization is a field of economics that studies the strategic behavior of firms, the structure of markets and their interactions. The study of industrial organization adds to the perfectly competitive model real-world frictions such as limited information, transaction cost, cost of adjusting prices, government actions, and barriers to is the field which describes the behavior of firms in the marketplace with regard to production, pricing, employment and other decisions. Topics in this field range from classical issues such as opportunity cost Opportunity cost is the cost related to the next-best choice available to someone who has picked between several mutually exclusive choices. It is a key concept in economics. It has been described as expressing "the basic relationship between scarcity and choice." The notion of opportunity cost plays a crucial part in ensuring that to neoclassical concepts such as factors of production In economics, factors of production are the resources employed to produce goods and services. They facilitate production but do not become part of the product (as with raw materials) or become significantly transformed by the production process (as with fuel used to power machinery). To 19th century economists, the factors of production were land (.
The following outline is provided as an overview of and topical guide to industrial organization:
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Essence of industrial organization
- a field of economics Economics is the social science that is concerned with the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current that studies:
- the strategic behavior Strategic or institutional management is the conduct of drafting, implementing and evaluating cross-functional decisions that will enable an organization to achieve its long-term objectives. It is the process of specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, of firms A business is a legally recognized organization designed to provide goods or services, or both, to consumers, businesses and governmental entities. Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business
- the structure of markets A market is any one of a variety of different systems, institutions, procedures, social relations and infrastructures whereby persons trade, and goods and services are exchanged, forming part of the economy. It is an arrangement that allows buyers and sellers to exchange things. Competition is essential in markets, and separates market from trade
- Perfect competition In economics, perfect competition occurs in markets in which no participant has market power. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Nonetheless, the concept of perfect competition can serve as a useful benchmark against which to measure real life, imperfectly competitive
- Monopolistic competition Monopolistic competition is a form of imperfect competition where many competing producers sell products that are differentiated from one another . In monopolistic competition firms can behave like monopolies in the short-run, including using market power to generate profit. In the long-run, other firms enter the market and the benefits of
- Oligopoly In Economics, an oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι (oligoi) "few" + πωλειν (polein) "to sell". Because there are few sellers, each oligopolist is likely to be aware of
- Oligopsony An oligopsony (from Ancient Greek ὀλίγοι "few" + ὀψωνία (opsōnia) "purchase") is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in market for inputs where a small number of firms are competing to obtain factors of production. It
- Monopoly In economics, a monopoly (from Greek monos / μονος + polein / πωλειν (to sell)) exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. (This is in contrast to a monopsony which relates to a
- Monopsony In economics, a monopsony (from Ancient Greek μόνος "single" + ὀψωνία (opsōnia) "purchase") is a market form in which only one buyer faces many sellers. It is an example of imperfect competition, similar to a monopoly, in which only one seller faces many buyers. As the only purchaser of a good or service, the "
- and the interactions between them
History of industrial organization
- Main article: History of industrial organization
Industrial organization concepts
- Production theory basics Production refers to the economic process of converting of inputs into outputs. Production uses resources to create a good or service that is suitable for exchange. This can include manufacturing, storing, shipping, and packaging. Some economists define production broadly as all economic activity other than consumption. They see every commercial
- production efficiency
- factors of production In economics, factors of production are the resources employed to produce goods and services. They facilitate production but do not become part of the product (as with raw materials) or become significantly transformed by the production process (as with fuel used to power machinery). To 19th century economists, the factors of production were land (
- total, average, and marginal product curves
- marginal productivity The marginal revenue productivity theory of wages, also referred to as the marginal revenue product of labor, is the change in total revenue earned by a firm that results from employing one more unit of labor. It is a neoclassical model that determines, under some conditions, the optimal number of workers to employ at an exogenously determined
- isoquants In economics, an isoquant is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization problem of producers & isocosts
- the marginal rate of technical substitution In economics, the marginal rate of technical substitution or the Technical Rate of Substitution (TRS) is the amount by which the quantity of one input has to be reduced ( − Δx2) when one extra unit of another input is used (Δx1 = 1), so that output remains constant ()
- Economic rent Economic rent is defined as an excess distribution to any factor in a production process above the amount required to draw the factor into the process or to sustain the current use of the factor
- classical factor rents
- Paretian factor rents
- Production possibility frontier In economics, a production-possibility frontier , sometimes called a "production-possibility curve" or "product transformation curve", is a graph that shows the different rates of production of two goods and/or services that an economy can produce efficiently during a specified period of time with a limited quantity of
- what products are possible given a set of resources
- the trade-off between producing one product rather than another
- the marginal rate of transformation
- Production function In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs. This function is an assumed technological relationship, based on the current state of engineering knowledge; it does not represent the result of economic choices, but
- inputs
- diminishing returns to inputs
- the stages of production
- shifts in a production function
- Cost theory
- the different types of costs In business, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In economics, a cost is an alternative that is given up as a result of a decision. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is
- opportunity cost Opportunity cost is the cost related to the next-best choice available to someone who has picked between several mutually exclusive choices. It is a key concept in economics. It has been described as expressing "the basic relationship between scarcity and choice." The notion of opportunity cost plays a crucial part in ensuring that
- accounting cost or historical costs
- transaction cost In economics and related disciplines, a transaction cost is a cost incurred in making an economic exchange . For example, most people, when buying or selling a stock, must pay a commission to their broker; that commission is a transaction cost of doing the stock deal. Or consider buying a banana from a store; to purchase the banana, your costs
- sunk cost In economics and business decision-making, sunk costs are retrospective costs that have already been incurred and cannot be recovered. Sunk costs are sometimes contrasted with prospective costs, which are future costs that may be incurred or changed if an action is taken. Both retrospective and prospective costs may be either fixed (that is, they
- marginal cost In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. That is, it is the cost of producing one more unit of a good. Mathematically, the marginal cost function is expressed as the first derivative of the total cost (TC) function with respect to quantity (Q). Note that the
- the isocost line
- the different types of costs In business, retail, and accounting, a cost is the value of money that has been used up to produce something, and hence is not available for use anymore. In economics, a cost is an alternative that is given up as a result of a decision. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is
- Cost-of-production theory of value In economics, the cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can compose any of the factors of production and taxation
- Long-run cost and production functions
- long-run average cost In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms use these curves to find the optimal point of production, where they make the most profits. There are a few different types of cost curves, each relevant to a different area of economics
- long-run production function and efficiency
- returns to scale and isoclines
- minimum efficient scale Minimum efficient scale is a term used in industrial organization to denote the smallest output that a plant (or firm) can produce such that its long run average costs are minimized. This concept is useful in determining the likely market structure of a market. For instance, if the minimum efficient scale is small relative to the overall size of
- plant capacity
- Economies of density
- Economies of scale Economies of scale, in microeconomics, are the cost advantages that a business obtains due to expansion. They are factors that cause a producer’s average cost per unit to fall as scale is increased. Economies of scale is a long run concept and refers to reductions in unit cost as the size of a facility, or scale, increases. Diseconomies of scale
- the efficiency consequences of increasing or decreasing the level of production
- Economies of scope Economies of scope are conceptually similar to economies of scale. Whereas economies of scale primarily refer to efficiencies associated with supply-side changes, such as increasing or decreasing the scale of production, of a single product type, economies of scope refer to efficiencies primarily associated with demand-side changes, such as
- the efficiency consequences of increasing or decreasing the number of different types of products produced, promoted, and distributed
- Optimum factor allocation
- output elasticity of factor costs Factor cost or national income by type of income is a measure of national income or output based on the cost of factors of production, instead of market prices. This allows the effect of any subsidy or indirect tax to be removed from the final measure
- marginal revenue product
- marginal resource cost
- Pricing Pricing is the process of determining what a company will receive in exchange for its products. Pricing factors are manufacturing cost, market place, competition, market condition, and quality of product. Pricing is also a key variable in microeconomic price allocation theory. Pricing is a fundamental aspect of financial modeling and is one of the
- various aspects of the pricing decision
- Transfer pricing Transfer pricing refers to the setting, analysis, documentation, and adjustment of charges made between related parties for good, services, or use of property . Transfer prices among components of an enterprise may be used to reflect allocation of resources among such components, or for other purposes. OECD Transfer Pricing Guidelines state, “
- selling within a multi-divisional company
- Joint product pricing Pricing for joint products is a little more complex than pricing for a single product. To begin with there are two demand curves. The characteristics of each demand curve could be different. Demand for one product could be greater than for the other product. Consumers of one product could be more price elastic than the consumers of the other
- price setting when two products are linked
- Price discrimination Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider. In a theoretical market with perfect information, perfect substitutes, and no transaction costs or prohibition on secondary exchange to prevent arbitrage, price discrimination can only be a
- different prices to different buyers
- types of price discrimination
- yield management Yield management, also known as revenue management, is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource
- Price skimming Price skimming is a pricing strategy in which a marketer sets a relatively high price for a product or service at first, then lowers the price over time. It is a temporal version of price discrimination/yield management. It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price
- price discrimination over time
- Two part tariffs A two-part tariff is a price discrimination technique in which the price of a product or service is composed of two parts - a lump-sum fee as well as a per-unit charge. In general, price discrimination techniques only occur in partially or fully monopolistic markets. It is designed to enable the firm to capture more consumer surplus than it
- charging a price composed of two parts, usually an initial fee and an ongoing fee
- Price points Price points are prices at which demand for a given product stays relatively high
- the effects of a non-linear demand curve on pricing
- Cost-plus pricing Cost-plus pricing is a pricing method used by companies. It is used primarily because it is easy to calculate and requires little information. There are several varieties, but the common thread in all of them is that one first calculates the cost of the product, then includes an additional amount to represent profit. It is a way for companies to
- a markup Markup is the difference between the cost of a good or service and its selling price. A markup is added on to the total cost incurred by the producer of a good or service in order to create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product. Markup can be expressed as a fixed is applied to a cost term in order to calculate price
- cost-plus pricing with elasticity considerations One of the most common pricing methods used by firms is cost-plus pricing. In spite of its ubiquity, economists rightly point out that it has serious methodological flaws. It takes no account of demand. There is no way of determining if potential customers will purchase the product at the calculated price. To compensate for this, some economists
- cost plus pricing is often used along with break even analysis The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product . A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can
- Rate of return pricing Target rate of return pricing is a pricing method used almost exclusively by market leaders or monopolists. You start with a rate of return objective, like 5% of invested capital, or 10% of sales revenue. Then you arrange your price structure so as to achieve these target rates of return
- calculate price based on the required rate of return on investment, or rate of return on sales
- Profit maximization In economics, profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue–total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue–marginal cost method is based on the fact
- determining the optimum price and quantity
- the totals approach
- marginal approach of production
Persons influential in the field of industrial organization
Industrial organization scholars
See also
- List of production topics Categories: Outlines | Production | Production lists | Business lists | Production and manufacturing
- Important publications in production theory Description: The book is usually considered to be the beginning of modern economics. It begins with a discussion of the Industrial Revolution. Later it critiques the mercantilism and a synthesis of the emerging economic thinking of his time. It is mostly known due to the idea of The Invisible Hand which is an often quoted phrase from the book. Its
- Microeconomics
References
External links
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Categories: Outlines | Industrial organization | Pricing | Microeconomics | Production and manufacturing | Economics of production
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of the cost reductions since are due to series production and learning about the production process The rounded curve is a fitted trend line with the estimated function given in the graph The Danish and German success with wind energy shows that fair competitive pricing as a result of the internalisation of external costs is necessary for the market diffusion of a renewable
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and states "the . price. drop is due to lowered . production costs. " and "eliminated the Pro to make the choice between console SKUs easier for consumers.". Playstation 3. The biggest relief for all consumers wanting to buy the PS3 this year ...
How do I find production cost and profit?
Q. One of the Banana Companies in the Stann Creek district, Banana Monkey Limited has four producing plants. The manager of the company wants to forecast the profit that it will make for the last quarter of the year, based on the present production levels, operating cost and price of (90lbs) box of bananas. The price of a (90lbs) box of bananas is presently quoted as BZ$ 10.90. The production cost per box is BZ$3.17. The number of boxes produced for each month in each of the plants are as follow: PlantsJanuary- March Production 1122750211300114225 2232275212321213453 3114206162310114400 4382200213200249701 Using the previous information: a) Create a spreadsheet to calculate the production cost and profit for each plant for each month. b)… [cont.]
Asked by bmwlover07 - Tue Oct 14 15:02:19 2008 - - 1 Answers - 0 Comments
A. The profit is the price minus the production cost times the quantity.
Answered by robrobiii - Tue Oct 14 16:12:21 2008
Q. One of the Banana Companies in the Stann Creek district, Banana Monkey Limited has four producing plants. The manager of the company wants to forecast the profit that it will make for the last quarter of the year, based on the present production levels, operating cost and price of (90lbs) box of bananas. The price of a (90lbs) box of bananas is presently quoted as BZ$ 10.90. The production cost per box is BZ$3.17. The number of boxes produced for each month in each of the plants are as follow: PlantsJanuary- March Production 1122750211300114225 2232275212321213453 3114206162310114400 4382200213200249701 Using the previous information: a) Create a spreadsheet to calculate the production cost and profit for each plant for each month. b)… [cont.]
Asked by bmwlover07 - Tue Oct 14 15:02:19 2008 - - 1 Answers - 0 Comments
A. The profit is the price minus the production cost times the quantity.
Answered by robrobiii - Tue Oct 14 16:12:21 2008
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