Econ103part05 - Part 5 The Theory of Production and Cost...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
Part 5 The Theory of Production and Cost Production normally organized in Firms A Firm hires inputs, organizes production, and sells goods or services A firm is a governance structure that can range from simple to highly complex (sole owner to large multi- nation corporation) Firms allocate resources and coordinate economic activities internally using commands and incentive systems
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Why Firms? Why is all economic activity not coordinated through markets? Firms exist because they offer cost advantages over market transactions - Transactions costs - Monitoring - Economies of scale or scope - Economies of team production
Background image of page 2
Why Markets? Why is all economic activity not coordinated through organized firms (or just one giant firm)? Principal-agent and incentive problems Problems of information and management provide limits to firm size
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The Firm’s Goals The goal of the owners of the firm is to maximize the return on their capital investment—to maximize profit Profit is revenue less cost-- defined as opportunity cost Explicit and implicit costs Normal profit and economic profit
Background image of page 4
The Firm’s Constraints Available technology Prices of inputs Fixed capital in the short run Degree of competition in the
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/28/2011 for the course ECON 103 taught by Professor Rutherford during the Winter '10 term at University of Victoria.

Page1 / 21

Econ103part05 - Part 5 The Theory of Production and Cost...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online