Lecture 14 - Announcements Monday is review BRING QUESTIONS...

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Announcements Monday is review – BRING QUESTIONS!! MT is Weds in this room at this time (but show up early if you can) A bit about the exam: 50 multiple choice questions. Nothing from ch 3 unless I talked about it in class. Ch 1,2,4,5,6 – about equal weight (less from 1) If I didn’t discuss a topic in class, it will not be on the test. 1 of 33
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THE THEORY OF THE FIRM 2 of 33
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Firms What is a firm? Economists view a firm as a bundle of contracts. The firm is a black box; you put stuff in and get stuff out. A firm is a web of contracts between input suppliers and the owner(s). These contracts allow the firm to transform inputs (land, labor, capital, and entrepreneurial ability) into output (goods and services). 3 of 33 production The process by which inputs are combined, transformed, and turned into outputs.
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4 of 33 Firms What the book says (in ch. 3): firms Economic units formed by profit-seeking entrepreneurs who employ resources to produce goods and services for sale. (ch3 has stuff about types of firms. We don’t need to distinguish here)
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Firms What do firms do? 1.Make stuff (produce goods and services) 1.Maximize PROFITS For this class, we assume that all firms are in business to maximize profits. PROFITS= total revenue – total costs. Or, in short hand π = TR-TC . Where TR=P*Q (a negative profit is called a loss) 5 of 33
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Accountants vs. Economists Accountants and economists use the same equation for profits : π = TR-TC.
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Lecture 14 - Announcements Monday is review BRING QUESTIONS...

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