Overview
There are two primary agents in standard microeconomics: the consumer and the firm. The primary thing that a firm does, is to produce goods and services, which it then sells to consumers. Modeling the firm can be broken down into the following.- Firm Revenue:
the money that the firm makes from selling its product or service.
- The Firm's Production Function: which measures how much the firm can produce for a given set of inputs. Production can be view from two different angles:
- Customer Demand: is the amount of product that customers will demand at various price points.
- Firm Profitability: the amount of money that the firm retains after paying its expenses.
- Firm Valuation - a theoretical fair price for buying a firm.
Markets
Markets describe the environment that a firm operates in.- Competitive: a market with lots of participating firms with similar products. Firms find it hard to earn an profit in such a market.
- Monopoly: is a market in which the firm is essentially the only player. In such a market, the monopoly has a certain freedom in choosing the price it wishes to charge.
Porters Five Forces: discusses the five force framework that summarizes the forces present in an industry which help to determine a firms profitability.