Week #1

Principles of Macroeconomics (with Xtra!)

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The evolution of the modern firm : the changing nature of the firm. A brief flashback may help us to understand the nature of the firm better. Before 1840s , organization structures were virtually nonexistent. - Manufacturing was generally conducted on a small scale: one person, or a small group of people, usually family based, hired all the employees and directed all activities of the business. - Each business was limited to a small scale that an entrepreneur could personally supervise. Three crucial technological developments changed this situation: Transportation: - The steamship permitted scheduled, predictable ocean shipping - The railroad allowed speedy transportation of people, goods, and information over continental distances. Communication : The telegraph initiated near- instantaneous communication. 1
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The developments in transportation and communication made it possible to conceive of doing business on a large scale. By the end of 19 th century, larger enterprises had emerged to sell their products at a nationwide scale. Since late 19 th century, 1870, no longer limited by the size of their local markets, firms began to use new methods of production, designing specialized tools and introducing mass-production methods. And these developments allowed firms to produce large quantities of products at lower costs.
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