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Microeconomics is also know as price theory to highlight the signifcance of prices in relation to buyer and sellers as these agents determine prices due to their individual actions

Allocation of scarce resources
Individuals and firms need to allocate limited resources to ensure all agents in the economy are well off. Firms decide which goods and services to produce taking into account low costs involving labour, materials and capital as well as potential profit margins. Consumers choose the good and services they want that will maximize their happiness taking into account their limited wealth.

The government can make these allocation decisions or they can be independently made by the consumers and firms. For example, in the former Soviet Union, the government played a part in informing car manufacturers which cars to produce and which conusmers will gain access to a car.

Imperfect Competition
In perfect competiton, market power is not achievable due to a high level of producers causing high levels of competition. Therefore, prices are brought down to a marginal cost level. In a monopoly, market power is achieved by one firm leading to prices being higher than the marginal cost level. Between these two types of markets are firms that are neither perfectly competitive or monopolistic. Firms such as Pepsi and Coke and Sony, Nintendo and Microsoft dominate the cola and video game industry respectively. These firms are in imperfect competition

Fixed and variable costs

 * Fixed cost (FC)- This cost does not change with output. It includes business expenses such as rent, salaries and utility bills
 * Variable cost (VC)- This cost changes as output changes. This includes raw materials, delievry costs and prodcution supplies

Over a short time period (few months), most costs are fixed costs as the firm will have to pay for salaries, contracted shipment and materials used to produce various goods. Over a longer time period (2-3 years), costs can become variable. Firms can decide to reduce output, purchase fewer materials and even sell some machinery. Over 10 years, most costs become variable as workers can be laid off or new machinery can be bought to replace the old machinery

Sunk Costs- This is a fixed cost that has already been incurred and cannot be recovered. An example of this can be in R&D development like in the pharmaceuatical industry. Hundreds of millions of dollars are spent to achieve new drug breakthroughs but this is challenging as its increasingly harder to find new breakthroughs and meet tighter regulation standards. Thus many projects are written off leading to losses of millions of dollars