1. Technology The more tradition approach is to assume (1)A production correspondence, e.g f(K, L) or more generally f(2, that maps the vector of inputs z which cost w into a vector of outputs, which are then sold at prices P for total revenues Pf(z n many cases, we think of f(z) as a function - i.e. only one output-but is doesnt need to be We assume first that firms treat prices as given-i e they are price takers-ie they dont have market power (2)We assume that firms maximize profits and that they have the option(at least in the long run) to exit, i. e. earn zero profits1. Technology The more tradition approach is to assume: (1) A production correspondence, e.g. f(K,L) or more generally fZ, that maps the vector of inputs Z which cost W into a vector of outputs, which are then sold at prices P for total revenues PfZ. In many cases, we think of fZ as a function– i.e. only one output– but is doesn’t need to be. We assume first that firms treat prices as given– i.e. they are price takers– i.e. they don’t have market power. (2) We assume that firms maximize profits, and that they have the option (at least in the long run) to exit, i.e. earn zero profits