The Nucleus of Capitalism: The Company That Maximizes Benefits

In the modern economies of the market, such as where you live in, almost everything you eat, drink, wear, drive, use, use to move around or use to fly, have all been made by a company. For this reason obviously, economists spend a good amount of time studying the way businesses behave.

In this part of the site we will provide some insight on how economists build a model of a company that is part of a competitive industry, which means that it is part of one of the many companies that compete amongst each other. There are a couple important reasons why it is important to know how companies behave in competitive industries:

  • In everyday life, most companies have to face a lot of very strong competition because they are members or belong to industries that are very competitive or monopolistically competitive industries.
  • All companies, even those that do not have a great amount of competition, behave in a very similar way.

Above everything else, something that all companies look for and go after is to maximize their benefits. And even more importantly, it turns out that all companies look to maximize the benefits in the same way which is done by producing exactly the amount for which the cost of producing one more unit is barely the same of the increase in the income that the company obtains by selling that unit.

We will be looking into why companies behave in this way and once this is understood, it will be easy to understand how companies work whether they have a lot of competition or none at all.