Industrial Economics

Guided by DSL.

The course would mainly include 2 concepts, which are Monopoly and Oligopoly.

The textbook we use is: Industrial Organization: Theory and Practice (International Student Edition) 5th Edition by Don E. Waldman and Elizabeth J. Jensen.

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Lecture 1 Introduction

Fundamental Question of economics is that it is crucial to understand how production and exchange are organized.

How are products allocated to the people?

A: (mostly) through the market

Perfect market is the desire market structure

How do IO Economics Answer Questions?

Using a combination of

Micro Theory, especially Game Theory

Perfect Competition and Monopoly

Firm Behavior

Profits

$\pi =TR-TC=P\times Q-TVC-FC$

TVC stands for total variable costs. They vary with the level of output, like labor and material inputs, capital depreciation, etc.

Our definition of costs should be based on economically-based Opportunity Cost, not accounting costs.

Specifically, in a cost function, if we face an equation like:

$C(q)=100+10q^2$, it is easy to justify that $100$ is the fixed cost, while the variable costs, is $10q^2$. (Since it depends on the quantity.)

We will sometimes refer to two concepts:

• Economies of scale
• Economies of scope