1. IGCSE Economics Theory of the firm Theory of the firm

2. IGCSE Economics Theory of the firm Objectives To explain an economists view of profit To describe the main features of monopoly and perfect competition To explain why Governments may want to limit the power of monopolists To describe possible advantages of monopolies.

3. IGCSE Economics Theory of the firm What is profit? Accounting profit: Revenue – Costs Economics (as always) needs to take into account Opportunity Cost. Normal profit Abnormal (super-normal) profit

4. IGCSE Economics Theory of the firm A sliding scale…. MonopolyPerfect Competition Increasing number of firms Oligopoly Monopolistic Comp

5. IGCSE Economics Theory of the firm Monopoly What is a monopoly? What are ‘barriers to entry? Why might Governments wish to limit the power of monopolists? Are there any positive externalities from being a monopolist?

6. IGCSE Economics Theory of the firm Perfect Competition What are the characteristics of perfect competition? Why does it lead to only normal profit? (Technically, in the short run it can mean abnormal profit)

7. IGCSE Economics Theory of the firm Oligopolies Oligopo what? Interdependence: - The prisoners dilemma, and game theory CollusionExamples?

8. IGCSE Economics Theory of the firm Imperfect (or monopolistic) competition What?ExamplesResults