lect2n - Basic Micro More on the Firm Prot maximization is...

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Basic Micro: More on the Firm Profit maximization is a basic tenet of micro. But is it realistic? Not always, because management is separated from ownership. Recipients of profits are not the agents whose decisions determine profit levels. Managers objectives differ from those of shareholders.
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Basic Micro: More on the Firm If shareholders are willing to control managers, there is the problem of asymmetric information . Agency theory is the area of economics that deals with this type of strategic interaction. A separate issue we will be interested in is what determines a firms size. We’ll look at this in two ways:
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Basic Micro: More on the Firm Vertical Integration Use the firm or the market to obtain inputs. Each alternative has its own incentive problems. Horizontal Extension How much of a given product to produce. How many different products to offer. The size is usually determined by where AC is minimized.
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Games and Strategy Often it is the case where firms face the problem of interdependent decision making .
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