2.22.10 – Lecture Notes, ECON 201

2.22.10 – Lecture Notes, ECON 201 - 2.22.10...

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2.22.10 – Lecture Notes, ECON 201 INTRODUCTION TO FIRMS Consumers are Demanders and Businesses are Suppliers. Goods & Service Markets The firm is any organization or institution that transforms the resources into goods and services. A business operated in a G&S Market, but it is also in the resource market buying services. Decisions within the firm are taken as if the firm is a self-contained, command economy. Like the old Soviet Union Economy - Other people make decisions Background on US Firms: 1. There are many firms (over 17 million) a. 3% net growth each year since WWII. 2. The majority of firms have fewer than 100 workers a. Firms like GM and Ford are unusually large 3. Most new jobs are in smaller firms 4. Most firms are in services and trade a. Services: Lawyers Trade: Commerce 5. Most firms are sole proprietorships a. How they are organized b. Owner and operator are the same c. 8% are Partnerships 2 or more owners Downfalls of sole proprietorship/partnership: - No distinctions between business and home if the business goes down, you go down with it. THE CORPORATION: 1. Corporations are legal entities (Persons). a. Separate from YOU & Personal stuff. b. Fictitious Legal Entity 2. Corporations have limited liability a. It’s expensive to set up a corporation, but there is that limited liability or insulation 3. Owners and managers are often separate OBJECTIVE OF FIRMS Economists assume that firms try to maximize total profits. Total Profit = Total revenue – Total cost It is assumed that the goal is to get the MAXIMUM profit. DO FIRMS REALLY TRY TO MAXIMIZE TOTAL PROFITS?
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2.22.10 – Lecture Notes, ECON 201 - 2.22.10...

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