ABSTRACT

This chapter introduces the Neoclassical firm, synthesized by the “production function,” as one of the main conceptualizations of the firm, and then explores its analytical timeframes through the concepts of short-run and long-run (in production). Revenues, productivity of labor, and production costs are discussed in relation to the firm’s profit maximization objective. The analysis of total revenues offers the opportunity to discuss the firm’s price-making ability as dependent on the degree of competition the firm faces in the market (market structures). Next, the study of productivity and costs is introduced with practical, numerical examples, and then it’s moved to a more abstract level by introducing cost functions and corresponding graphical representations. Short-run profit maximization is fully detailed first for the benchmark case of perfect competition and then for the case of monopoly.