{"id":208,"date":"2015-04-22T03:55:30","date_gmt":"2015-04-22T03:55:30","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterymicro1xngcxmaster\/?post_type=chapter&#038;p=208"},"modified":"2015-12-17T19:47:21","modified_gmt":"2015-12-17T19:47:21","slug":"introduction-to-cost-and-industry-structure","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/chapter\/introduction-to-cost-and-industry-structure\/","title":{"raw":"Reading: Cost and Industry Structure","rendered":"Reading: Cost and Industry Structure"},"content":{"raw":"<h2>Introduction to Cost and Industry Structure<\/h2>\r\nThis module\u00a0is the first of several\u00a0modules\u00a0that explore the <strong><span class=\"emphasis\" data-redactor-tag=\"span\"><em>theory of the firm<\/em><\/span><\/strong>. This theory explains that firms behave in much the same way as consumers behave. What does that mean? Let's define what is meant by the firm. A\u00a0<strong><em data-redactor-tag=\"em\">firm<\/em><\/strong><a id=\"id557631\" class=\"indexterm\"><\/a> (or business) combines inputs of labor, capital, land, and raw or finished component materials to produce outputs. If the firm is successful, the outputs are more valuable than the inputs. This activity of\u00a0<strong><em data-redactor-tag=\"em\">production<\/em><\/strong><a id=\"id557646\" class=\"indexterm\"><\/a> goes beyond manufacturing (i.e., making things). It includes any process or service that creates value, including transportation, distribution, wholesale and retail sales. Production involves a number of important decisions that define the behavior of firms. These decisions include, but are not limited to:\r\n<ul>\r\n\t<li>What product or products should the firm produce?<\/li>\r\n\t<li>How should the products be produced (i.e., what production process should be used)?<\/li>\r\n\t<li>How much output should the firm produce?<\/li>\r\n\t<li>What price should the firm charge for its products?<\/li>\r\n\t<li>How much labor should the firm employ?<\/li>\r\n<\/ul>\r\nThe answers to these questions depend on the production and cost conditions facing each firm. The answers also depend on the structure of the market for the product(s) in question. Market structure is a multidimensional concept that involves how competitive the industry is. It is defined by questions such as these:\r\n<ul>\r\n\t<li>How much market power does each firm in the industry possess?<\/li>\r\n\t<li>How similar is each firm's product to the products of other firms in the industry?<\/li>\r\n\t<li>How difficult is it for new firms to enter the industry?<\/li>\r\n\t<li>Do firms compete on the basis of price, advertising, or other product differences?<\/li>\r\n<\/ul>\r\nFigure 7.2 illustrates the range of different market structures, which we will explore in Perfect Competition, Monopoly, and Monopolistic Competition and Oligopoly.\r\n\r\n[caption id=\"\" align=\"alignnone\" width=\"585\"]<img style=\"display: block; margin: auto;\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1295\/2015\/04\/03181940\/CNX_Econ_C07_001.jpg\" alt=\"The line chart provides characteristics of perfect competition (many firms and identical product), monopolistic competition (many firms and similar but not identical products), oligopoly (few firms with identical or similar products), and monopoly (one firm with no similar products).\" width=\"585\" height=\"178\" \/> <strong>Figure 7.2.<\/strong> The Spectrum of Competition. Firms face different competitive situations. At one extreme\u2014perfect competition\u2014many firms are all trying to sell identical products. At the other extreme\u2014monopoly\u2014only one firm is selling the product, and this firm faces no competition. Monopolistic competition and oligopoly fall between the extremes of perfect competition and monopoly. Monopolistic competition is a situation with many firms selling similar, but not identical, products. Oligopoly is a situation with few firms that sell identical or similar products.[\/caption]","rendered":"<h2>Introduction to Cost and Industry Structure<\/h2>\n<p>This module\u00a0is the first of several\u00a0modules\u00a0that explore the <strong><span class=\"emphasis\" data-redactor-tag=\"span\"><em>theory of the firm<\/em><\/span><\/strong>. This theory explains that firms behave in much the same way as consumers behave. What does that mean? Let&#8217;s define what is meant by the firm. A\u00a0<strong><em data-redactor-tag=\"em\">firm<\/em><\/strong><a id=\"id557631\" class=\"indexterm\"><\/a> (or business) combines inputs of labor, capital, land, and raw or finished component materials to produce outputs. If the firm is successful, the outputs are more valuable than the inputs. This activity of\u00a0<strong><em data-redactor-tag=\"em\">production<\/em><\/strong><a id=\"id557646\" class=\"indexterm\"><\/a> goes beyond manufacturing (i.e., making things). It includes any process or service that creates value, including transportation, distribution, wholesale and retail sales. Production involves a number of important decisions that define the behavior of firms. These decisions include, but are not limited to:<\/p>\n<ul>\n<li>What product or products should the firm produce?<\/li>\n<li>How should the products be produced (i.e., what production process should be used)?<\/li>\n<li>How much output should the firm produce?<\/li>\n<li>What price should the firm charge for its products?<\/li>\n<li>How much labor should the firm employ?<\/li>\n<\/ul>\n<p>The answers to these questions depend on the production and cost conditions facing each firm. The answers also depend on the structure of the market for the product(s) in question. Market structure is a multidimensional concept that involves how competitive the industry is. It is defined by questions such as these:<\/p>\n<ul>\n<li>How much market power does each firm in the industry possess?<\/li>\n<li>How similar is each firm&#8217;s product to the products of other firms in the industry?<\/li>\n<li>How difficult is it for new firms to enter the industry?<\/li>\n<li>Do firms compete on the basis of price, advertising, or other product differences?<\/li>\n<\/ul>\n<p>Figure 7.2 illustrates the range of different market structures, which we will explore in Perfect Competition, Monopoly, and Monopolistic Competition and Oligopoly.<\/p>\n<div style=\"width: 595px\" class=\"wp-caption alignnone\"><img loading=\"lazy\" decoding=\"async\" style=\"display: block; margin: auto;\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images-archive-read-only\/wp-content\/uploads\/sites\/1295\/2015\/04\/03181940\/CNX_Econ_C07_001.jpg\" alt=\"The line chart provides characteristics of perfect competition (many firms and identical product), monopolistic competition (many firms and similar but not identical products), oligopoly (few firms with identical or similar products), and monopoly (one firm with no similar products).\" width=\"585\" height=\"178\" \/><\/p>\n<p class=\"wp-caption-text\"><strong>Figure 7.2.<\/strong> The Spectrum of Competition. Firms face different competitive situations. At one extreme\u2014perfect competition\u2014many firms are all trying to sell identical products. At the other extreme\u2014monopoly\u2014only one firm is selling the product, and this firm faces no competition. Monopolistic competition and oligopoly fall between the extremes of perfect competition and monopoly. Monopolistic competition is a situation with many firms selling similar, but not identical, products. Oligopoly is a situation with few firms that sell identical or similar products.<\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-208\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Principles of Microeconomics Chapter 7. <strong>Authored by<\/strong>: OpenStax College. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/6i8iXmBj@10.31:75YRzeYw@8\/Introduction-to-Cost-and-Indus\">http:\/\/cnx.org\/contents\/6i8iXmBj@10.31:75YRzeYw@8\/Introduction-to-Cost-and-Indus<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/content\/col11627\/latest<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":74,"menu_order":3,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc\",\"description\":\"Principles of Microeconomics Chapter 7\",\"author\":\"OpenStax College\",\"organization\":\"Rice University\",\"url\":\"http:\/\/cnx.org\/contents\/6i8iXmBj@10.31:75YRzeYw@8\/Introduction-to-Cost-and-Indus\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"Download for free at http:\/\/cnx.org\/content\/col11627\/latest\"}]","CANDELA_OUTCOMES_GUID":"072986a6-959a-4729-81d6-a65a9dc7bf0e, 4d0dd812-df17-4052-b12b-bddb9ca6512d","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-208","chapter","type-chapter","status-publish","hentry"],"part":28,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/chapters\/208","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/wp\/v2\/users\/74"}],"version-history":[{"count":12,"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/chapters\/208\/revisions"}],"predecessor-version":[{"id":3109,"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/chapters\/208\/revisions\/3109"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/parts\/28"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/chapters\/208\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/wp\/v2\/media?parent=208"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/pressbooks\/v2\/chapter-type?post=208"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/wp\/v2\/contributor?post=208"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/wp-json\/wp\/v2\/license?post=208"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}