Absolute View

Demand for the Goods of the Firm

where $p$ is the price the firm chooses to set, $q$ is the quantity the firm can sell at the price $p$, $n$ is the number of (representative) consumers in the market, $-\frac{b}{m}$ is the intercept of the representative consumer's demand function, and $-\frac{1}{m}$ is the slope of the representative consumer's demand function.

Inverse Demand for the Goods of the Firm

where $q$ is the quantity sold, $p$ is the (maximum) price the firm can obtain when it sells $q$, $n$ is the number of (representative) consumers in the market, $b$ is the intercept of the representative consumer's inverse demand function, and $m$ is the slope of the representative consumer's inverse demand function.

Firm's Cost of Production

where $q$ is the quantity of the output good produced, $w_k$ is the price of capital, $\overline{K}$ is the fixed quantity of capital deployed, $w_l$ is the price of labour (wage rate), $\alpha$ is the output elasticity of capital, $\beta$ is the output elasticity of labour, and $A$ is the efficiency parameter.

Note that in the case of two factors, short-run total cost is not dependant on $L$ since the quantity of labour required to produce any quantity of output $q$ is determined by $L^*=(\frac{q}{A\overline{K}^{\alpha }} )^{\frac{1}{\beta } }$.

Firm's Revenue

The revenue the firm gets from setting a price $p$ is given by:

The revenue the firm gets from selling quantity $q$ is given by:

Firm's Profit