39-econ - 20:43 1.1

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20:43 1.1  1.Theory of the firm: begins with a simple assumption—firms try to maximize their  profits. a. The theory uses this assumption to explain how firms choose the  amounts of labor, capital, and raw materials that they use for production and the  amount of input they produce. When evaluating a theory is it important to keep in mind that it is invariably  imperfect. Positive Analysis: analysis describing relationships of cause and effect. Explanation, prediction Normative Analysis: analysis examining questions of what ought to be What ought to be What is best 1.2 market:    Collection of buyers and sellers that, through  their actual or potential  interactions, determine the price of  a product or set of products. A market includes more than an industry In effect, an industry is the supply side of the market market definition     Determination of the buyers, sellers, and range of products 
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This note was uploaded on 10/26/2010 for the course ECON 203 at USC.

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39-econ - 20:43 1.1

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