Lec03 - Managerial 2071 Lecture 03: 01/17T 1. Today's plan...

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Managerial 2071 ©Haijin Lin 1 Managerial 2071 Lecture 03: 01/17T 1. Today’s plan (1) Comment on 3-8 (2) Review the notion of market (3) Ralph’s Single Product Firm (4) 2-3 2. Review the notion of market (1) perfect markets - prices are known - everyone acts as a price-taker - no trading friction (i.e., transaction costs) (2) in a perfect market, different cash flow series with the same present value are economically equivalent at the market interest rate - interest rate 10% - cash flow 1: [100 0 0 0] - cash flow 2: [0 40.21 40.21 40.21] - cash flow 3: [0 0 0 0 133.1] (3) in a perfect market, market value of a firm at any time is well-defined (refer to 3-8, part a) (4) will assume perfect market whenever possible
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Managerial 2071 ©Haijin Lin 2 3. Economic theory of firm: Ralph’s Single Product Firm (1) firm straddles markets buys factors applies production technology produces sells (2) describe the firm’s production technology by a special Cobb-Douglas production function
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Lec03 - Managerial 2071 Lecture 03: 01/17T 1. Today's plan...

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