IBDP Economics Chapter 6 Notes

the theory of the firm i

STUDY NOTES FOR ECONOMICS CHAPTER 6 – THE THEORY OF THE FIRM I

These notes have specially been curated by expert teachers to simplify and enlighten concepts given in IB The Theory of the Firm-I HL. The notes are comprehensive in nature and are sufficient to study the chapter in depth and one need not look for other resources beyond the notes provided on our website which can be accessed for free. The notes for The Theory of the Firm-I IBDP HL are available on our official website and can be downloaded for free. The material made available on Tychr’s website is available for all IBDP subjects and is specially curated after an extensive amount of effort to ensure that the notes are in consonance with the IB curriculum and are an amalgamation from various textbooks prescribed by the IBO.

The chapter the theory of the form discusses about the production cost revenues and profits. First we look at production in the short run- the law of diminishing Returns in which we study about the total product marginal product and average product and the relations between average product and marginal product- relationship between total input and output. We are also introduced to costs of production in which we study implicit and explicit cost, the sum of which is economic cost.

Additionally we also study about the fixed variable and the total cost in the short and the long run. The short run cost curves are explained in detail with graphs and schedules for the students to have a better idea of the concepts along with the relationship between cost and product curves and the shifts in the cost curves. We also study about costs of production in the long run – return to scale, (constant returns to scale, increasing returns to scale and decreasing returns to scale).

To understand the graphs of the long-run ATC in relation to the short run ATC we look at the economies and diseconomies of scale which cause the u-shape of the long run ATC curve. Under revenue we look at total revenue, marginal revenue and average revenue and then finally we also look at profits of the firm. Lastly the chapter talks about the goals of the firm- (1) profit maximization which can be achieved through (a) TR TC approach and (b) Mr MC approach. (2) Revenue Maximization (3) Growth Maximization (4) managerial utility maximization (5) satisficing (6) ethical and environmental concerns.