Lecture%209%20February%2016

Lecture%209%20February%2016 - Todays agenda Plea se s ee m...

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Today’s agenda Profits and rational decision making Decision making when time is involved P leas e see m e: S u llt a n e C o saj
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Exam this Wednesday Exam will not cover today’s lecture. Before the exam, read: University Policy on Academic Integrity
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What to bring
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Preparing for the exam Practice solving problems. Use the results to analyze your weak points. Review these topics. Office hours before exam: Tomorrow: 2:00 to 3:20 p.m., NJ Hall 404 (Cheng Gao) Review sessions Tomorrow : 9:50 to 11:10 a.m., 214 Scott Sunday : 7:30 p.m., Scott 135
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The theory of the firm in microeconomics Model the behavior of the 10 million business units in the U.S. … and countless more abroad How do firms choose output levels? How do firms choose input levels? How are the production tasks of the economy divided among firms? Focus initially on the first of these questions
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The theory of the firm in microeconomics Model the behavior of the 10 million business units in the U.S. How do firms choose output levels? How do firms choose input levels? How are the production tasks of the economy divided among firms? Focus initially on the first of these questions Production Cost Supply
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Why does quantity supplied rise with price? Q $/Q S
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Assumed objective of firms: maximize profit Profit = Total Revenue – Total Cost
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Is profit maximization a plausible objective? Natural assumption for single proprietorships If you can somehow increase profits, you can increase your income and buy a more preferred bundle of consumption goods.
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Is profit maximization a plausible objective? Natural assumption for single proprietorships Not so clear when ownership is separated from control Principal-agent problem What motivates managers to act in the interest of stockholders? Incentives through compensation tied to profit Threat of hostile takeovers
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What are costs? Economic Profit = Total Revenue from commodities sold – Total Opportunity Cost of the factors of production used to produce them
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Opportunity cost of a productive input = value of the best alternative foregone Key issue : What has the firm sacrificed to use the input?
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Opportunity cost: two cases
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This note was uploaded on 03/08/2011 for the course ECON 220 taught by Professor Cai during the Spring '08 term at Rutgers.

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Lecture%209%20February%2016 - Todays agenda Plea se s ee m...

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