(BQ) Part 2 book "Micro economics and behavior" has contents: Perfect competition; government; externalities, property rights, and the coase theorem; capital; labor; imperfect competition - a game theoretic approach; monopoly; production. | fra7573x_ch09_261-296 9/1/07 12:32 AM Page 261 PA RT 3 THE THEORY OF THE FIRM AND MARKET STRUCTURE ■ The economic theory of the firm assumes that the firm’s primary goal is to maximize profits. Profit maximization requires the firm to expand its output whenever the benefit of doing so exceeds the cost. Our agenda in the first two chapters of Part Three is to develop the cost side of this calculation. Chapter 9 begins with the theory of production, which shows how labor, capital, and other inputs are combined to produce output. Making use of this theory, Chapter 10 then describes how the firm’s costs vary with the amount of output it produces. The next three chapters consider the benefit side of the firm’s calculation under four different forms of market structure. Chapter 11 looks at the perfectly competitive firm, for which the benefit of selling an extra unit of output is exactly equal to its price. Chapter 12 examines the monopoly firm, or sole supplier of a good for which there are no close substitutes. For such a firm, the benefit of selling an extra unit of output is generally less than its price because it must cut its price on existing sales in order to expand its output. Chapter 13 looks at two intermediate forms of market structure, monopolistic competition and oligopoly. In making decisions about output levels, monopolistically competitive firms behave just like monopolists. By contrast, the oligopolist must take account of strategic responses of its rivals when it calculates the benefits of expanding output. 261 fra7573x_ch09_261-296 9/1/07 12:32 AM Page 262 fra7573x_ch09_261-296 9/1/07 12:32 AM Page 263 CHAPTER 9 PRODUCTION any people think of production as a highly structured, often mechanical process whereby raw materials are transformed into finished goods. And without doubt, a great deal of production—like a mason’s laying bricks for the walls of a house—is of .
