B200.F08.W09.Costs.Competition.Clsnts

# B200.F08.W09.Costs.Competition.Clsnts - BUAD 200 Fall 2008:...

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The Organization of the Firm 1. 2. Teamwork Shirking 3. Shirking Monitoring 4. Profits monitor the Owner Firms attempt to Maximize Profits: = TR -TC; TR = PxQ which is a function of demand facing the firm. TC is a positive function of output. TC increases as output increases. So the question is,… What rate of output maximizes profit ? NEW: First we study Costs. Chapter12 Different decisions faced by owners involve different assumptions. Before going into a business, we consider Long-Run Analysis where all the inputs are variable . Since you can vary all inputs, all costs are variable i.e. no fixed costs. Once you have started in business you are making Short-Run decisions where some inputs are fixed and some are variable therefore some costs are fixed and some are variable. Operating a Widget Factory: In the short-run some costs are fixed: Total Fixed Costs = \$ 100 / day. Building Lease: \$30/day Equipment Lease: \$20/day Opportunity Cost of Owner/manager: \$50/day Analyze output decisions : Different rates of output require different amounts of variable inputs, here the number of workers. Workers 0 1 2 3 4 5 6 7 8 9 10 Output Q 0 10 25 45 62 76 86 91 95 97 98 Marginal Product 0 10 15 20 17 14 10 5 4 2 1 Total Cost 100 120 140 160 180 200 220 240 260 280 300 TC 20 20 20 20 20 20 20 20 20 20 Marginal Cost -- \$2.00 \$1.33 \$1.00 \$1.18 \$1.43 \$2.00 \$4.00 \$5.00 \$10.00 \$20.00

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## B200.F08.W09.Costs.Competition.Clsnts - BUAD 200 Fall 2008:...

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