Lecture 6 - Firms and Production Firm objectives...

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Firms and Production
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Firm objectives conflicting objectives between owners, managers, and other employees employees want to maximize their earnings or utility owners want to maximize profit: π = R - C R = revenue = pq = price x quantity C = cost
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Production production process: transform inputs or factors of production into outputs common types of inputs: capital ( K ): buildings and equipment labor services ( L ) materials ( M ): raw goods and processed products
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Production efficiency given current knowledge about technology and organization: current level of output cannot be produced with fewer inputs given quantity of inputs used, no more output could be produced production efficiency is a necessary but insufficient condition for profit maximization
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Production function with 2 inputs production function : relationship between quantities of inputs used and maximum quantity of output that can be produced, given current knowledge about technology and organization a production function that uses only labor and capital: q = f (L, K) to produce the maximum amount of output given efficient production
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Variability of inputs over time firm can more easily adjust its inputs in the long run (LR) than in the short run (SR) short run : a period of time so brief that at least one factor of production is fixed long run
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This note was uploaded on 07/13/2011 for the course PA 410 taught by Professor Staff during the Summer '08 term at Ill. Chicago.

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Lecture 6 - Firms and Production Firm objectives...

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