Notes Lecture 6

Notes Lecture 6 - Firm objectives conflicting objectives...

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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 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 K+L+M = QUANTITY SHOULD BE EFFICIENT 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 PRODUCTION EFFICENCY IS ONLY PART OF PROFIT MAXIMIZATION 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 Variability of inputs over time firm can more easily adjust its inputs in the long run (LR) than in the short 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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Notes Lecture 6 - Firm objectives conflicting objectives...

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