Micro: perfect, imperfect and monopoly

• In traditional economic theory, the firm's objective is profit maximization, which is used for reinvestment, paying dividends, lowering costs, increasing market share, and rewarding entrepreneurship.
• Profit maximization occurs where marginal cost equals marginal revenue, which is the only logical place to stop if we're looking to maximize profit.
• Many businesses do not profit maximize due to not knowing their marginal cost or not wanting to maximize profit.
• Scrutiny from competition authorities or regulators can be a reason for businesses not to profit maximize.
• Key stakeholders could be harmed if a business goes too hard with profit maximization, which is why profit satisficing occurs.
• Another reason businesses might use price strategies is the principal-agent problem, where managers use growth or sales as leverage to go for greater perks in their job.
• Businesses might use price strategies to limit competition and restrict competition, which are illegal because they restrict competition.
• Businesses might use price strategies to flood the market and develop loyalty to their product.
• Public sector organisations aim to maximise society interest, maximize the public interest, and maximize society welfare by pricing and producing where demand equals supply, which is allocated efficiency in the market.
• Businesses that pursue corporate social responsibilities recognize their social responsibility and follow ethics.
• Profit satisficing occurs when a business sacrifices profit to satisfy as many key stakeholders as possible.
• The core definition of profit satisficing is that a business sacrifices profit to satisfy as many key stakeholders as possible.
• If a business goes too hard for profit, key stakeholders could be harmed in the process.
• Stakeholders are anybody that has an interest in how that business is performing.
• Revenue maximization can also lead to predatory pricing, where a firm undercuts its rival on purpose to drive out competitors from the market.
• Revenue maximization can benefit consumers as it can lead to greater growth, economies of scale, lower average costs, and potentially lower prices.
• Excess prices and very low wages can harm consumers, workers, and the environment.
• Sales maximization, also known as growth maximization, is when a business aims to become as large as they possibly can be without making a loss, which occurs at breakeven where average cost equals average revenue.
• Profit maximization can harm consumers, workers, trade unions, the government, and environmental groups.
• Businesses aim to satisfy key stakeholders such as consumers, workers, trade unions, the government, and environmental groups.
• Revenue maximization occurs where marginal revenue is equal to zero.
• Revenue maximization can be used as a leverage by managers to ask for greater perks in their job.
• Perfect competition is a theoretical extreme and is not a realistic market structure, but it is important to assess the efficiency of real-world market structures as a benchmark.
• Perfect competition has many buyers and sellers
• In a perfectly competitive market structure, each firm sells homogeneous goods and services that are identical, and firms are price takers.
• If a new firm enters the market, it has to charge the price that's being charged by all other firms in the market.
• There are no barriers to entry and exit in a perfectly competitive market structure, so any firm that wants to enter or exit the market can do so freely without any cost.
• Perfect information of market conditions means consumers know about prices and quality in the market and producers know about prices, technology, and costs.
• Firms in a perfectly competitive market structure are profit maximizers, meaning they will produce where MC is equal to MR.
• The long-run equilibrium in perfect competition is when normal profit is being made, and any profit outside of normal profit is a short-run equilibrium.
• This profit is attracting new firms into the market, as there are no barriers to entry and perfect information of market conditions.
• A loss is made, representing a subnormal profit, as average cost is higher than average revenue.
• The total loss is represented by a box, shaded in, representing the area of subnormal profit being made by firms.
• This process will continue until there is no more incentive to enter the market, leaving only normal profit at the end.
• This loss position will not last in the long run, as firms will be incentivized to leave the market and produce at opportunity cost.
• For subnormal profit, the market is drawn on the left, with a supply and demand equilibrium price and quantity.
• Total supernormal profit is represented by a lovely box, shaded in, representing the total area of supernormal profit being made by the firm.
• Firms are price takers, taking the equilibrium price across, represented by the revenue curves.
• As new firms enter the market, supply shifts to the right, causing the price to fall.
• Supernormal profit is only a short-run equilibrium, not a long-run equilibrium, in a perfectly competitive market structure.