independent bookstores have mostly disappeared, Borders has gone out of business, and Barnes & Noble is

struggling. Online delivery and purchase of books has overtaken the more traditional business models. How has
158 7 • Production, Costs, and Industry Structure

Amazon changed the book selling industry? How has it managed to crush its competition?

A major reason for the giant retailer’s success is its production model and cost structure, which has enabled

Amazon to undercut the competitors' prices even when factoring in the cost of shipping. Read on to see how firms

great (like Amazon) and small (like your corner deli) determine what to sell, at what output, and price.

This chapter is the first of four chapters that explores the theory of the firm. This theory explains how firms

behave. What does that mean? Let’s define what we mean by the firm. A firm (or producer or business)
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