Production costs, revenues and profits in perfect competition: Business at the base of the pyramid

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Language:   English
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Case Study


The objective of this short case is to familiarize students with what it is like to do business at the base of the pyramid; and to use a practical situation to review the concepts of fixed and variable costs, implicit and explicit costs, and accounting profit vs economic profit. Students are also asked to reflect on the implications of operating in a perfectly competitive market, and to offer suggestions from market structure theory for a firm like the one described here, that would enable it to break out of its inevitable zero-profit equilibrium and move toward economic profits in the long run.