Wednesday, June 17, 2015

Firm behaviour vs Consumer behaviour

Similarities between Firm behavior and Consumer behavior:
1. Consumer produces satisfaction buying products. Similarly, firm produces output by taking input.
2. Consumer possesses utility function, which dictates the level of satisfaction using different combinations of commodities. Firm possesses production function.
3. Consumer follows a budget equation which is linear function of amount of commodities he produces.
Competitive firm follows a cost equation which is also a linear function of amounts of commodities.

Differences:
1. Utility function is subjective. Consumer does not process an unambiguous cardinal function, while production is objective.
Firm possesses a measurable numerical output producing function. There is no ambiguity.
2. Utility function produces single output termed as satisfaction.
Firm can can produce more than one outputs.
3. Rational consumer maximizes utility for a given income, while an entrepreneur maximizes output for a given cost level but often it goes beyond that considering the variables to maximize goal that is his profit.
 

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