• How much output should the firm produce?

• What price should the firm charge for its products?

• How much labor should the firm employ?

The answers to these questions depend on the production and cost conditions facing each firm. That is the

subject of this chapter. The answers also depend on the market structure for the product(s) in question. Market

structure is a multidimensional concept that involves how competitive the industry is. We define it by

questions such as these:

• How much market power does each firm in the industry possess?

• How similar is each firm’s product to the products of other firms in the industry?

• How difficult is it for new firms to enter the industry?

• Do firms compete on the basis of price, advertising, or other product differences?

Figure 7.2 illustrates the range of different market structures, which we will explore in Perfect Competition,

Monopoly, and Monopolistic Competition and Oligopoly.
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