Monday, January 9, 2012

Business Economics Concepts

Microeconomics and macroeconomics are the two major categories within the field of economics.  

Microeconomics is the branch of economics that deals with the functioning of individual industries and the behavior of individual decision-making units which in business firms and households. The focus of microeconomics is on markets that including in wage markets, the market for gasoline, rent markets, etc. 

Macroeconomics is the branch of economics that focuses on the determinants of such economic aggregates as national income, employment, the price level, interest rates, and exchange rates and on how government economic policy might be used to influence the behavior of these aggregates. Macroeconomics will asks questions like: Why does the China economy generally experience on higher rates of growth than Thailand economies? What causes inflation? What effect does the national debt have on economic growth? Etc.

Profit maximization is the process by which a firm determines of price and output level that returns the greatest profit. There are several approaches to this problem. The total revenue total cost method relies on the fact that profit equals revenue minus cost, and the marginal revenue -- marginal cost method is based on the fact that total profit in a perfectly competitive market reaches its maximum point where marginal revenue equals marginal cost. - Wiki -

Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. Perfect competition means there is a few, if any, barriers to entry for new companies, and prices are determined by supply and demand.

Monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political. For instance, a government can create a monopoly over an industry that it wants to control, such as electricity.

Oligopoly is a few firms that make up an industry. This select group of firms has control over the price and, like a monopoly; an oligopoly has high barriers to entry. The products that the oligopolistic firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces. 

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