Micro2_Chapter2

Micro2_Chapter2 - School of Business International...

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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 1 School of Business International University Mar 2009
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 2 Introduction ± Time: 3 hours ± Readings: – Keat & Young, Chapter 2 ± Content: –The F i rm – Economic Goal of the Firm – Goals Other Than Profit – Do Companies Maximize Profits? – Maximizing the Wealth of Stockholders – Economic Profits
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 3 Learning Objectives ± Understand reasons for existence of firms and meaning of transaction costs ± Explain economic goals and optimal decision making ± Describe meaning of “principal-agent” problem ± Distinguish between “profit maximization” and “shareholder wealth maximization” ± Demonstrate usefulness of Market Value Added and Economic Value Added
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 4 The Firm ± A firm is a collection of resources that is transformed into products demanded by consumers. ± Profit is the difference between revenue received and costs incurred.
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 5 ± Why the firm is existence? What will happen if every person will produce what product/ service they need?
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 6 The Firm ± Transaction costs are incurred when entering into a contract. – Types of transaction costs (use outsource) • Investigation (collect information to find suitable company) • Negotiation • Enforcing contract and coordinating transactions – Influences (Risky company meet when choose outsources) •Unce r ta in ty • Frequency of recurrence • Asset specificity
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 7 The Firm ± Limits to Firm Size – tradeoff between external transactions and the cost of internal operations – Company chooses to allocate resources so total cost is minimum – Outsourcing, non-core activities two curve intersect (cost of outside= cost inside) will born the lowest point of “blue curve”; it is the minimum total cost, where company choose to produce In this situation, the lowest at exactly 50-50. Sometimes, this point can move to another place (not 50-50 anymore)
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 8 The Firm
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References: Keat/Young, Managerial Economics, 5/e, Pearson Education Lecturer: Dr. Nguyen Quynh Mai 9 Economic Goal of the Firm ± Primary objective of the firm (to economists) is to maximize profits.
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This note was uploaded on 07/15/2011 for the course ECON 101 taught by Professor Abcd during the Spring '11 term at RMIT Vietnam.

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Micro2_Chapter2 - School of Business International...

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