|
|
Concept |
Imposed by |
between |
Concept |
|
inputs |
resources |
owners |
and amount of resource |
resource cost |
output |
function |
output |
product |
|
output |
curve |
price (money) |
revenue |
The importance of these three constraints can be seen in a product that no firm can produce at a profit. Any one of three changes, if large enough, can change the situation and make a profit possible. The cost of the inputs may drop in price enough so that the product is profitable. Or technology may improve enough to make the product profitable. Or people may increase the amount they are willing to pay for the product enough so that it is profitable. These three changes are changes in the supply-of-resources curves, the production function, and the demand curve, respectively.
We are not done with the theory of the firm, but only just begun.