The Theory of Contestable Markets states that when barriers to entry into a market are weak or low or in some cases non-existent, and assuming that all entrants have equal access to technology, there is a constant threat of potential entry.
Economic profit is different from the general business term ‘profit’. The general assumption is that firms are producing goods to maximize profits.
Barriers to Entry are designed to prevent potential competitors from entering the market. Some barriers to entry are placed by the government, while others could be related to cost. These barriers result in different market structures such as monopolies or oligopolies (a few firms).
Durable goods are those goods that don’t wear out quickly and last over a long period. While non-durable goods or soft goods are those goods that have a short life cycle.
The Theory of Production explains the principles by which a business firm decides how much of each commodity that it sells it will produce. And how much of each kind of labor, raw material, fixed capital goods, etc., that it employs it will use.
In the Cost Theory, there are two types of costs associated with production – Fixed Costs and Variable Costs.