Economic Analysis

Abstract

Up to now, we have ignored the market aspects of the story. Our focus has been on different ways to model technology and assess a firm’s efficiency and productivity. We argue this is a critical first step to improving a firm’s productivity. Firms are constantly looking for ways to innovate, either in the product market or in the means of production. In this chapter, we consider how a firm’s price, output, labor employed, revenue, profit, and market share are affected by the market in which the firm competes. In the parlance of economics, we will analyze a specific market with consumers and producers, and derive the market’s general equilibrium under a variety of different market structures. We use the analysis to quantitatively assess how a “productivity laggard” or a “productivity leader” would fare against its competition.