Lecture+9+October+6 - Todays agenda Profits and rational...

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Today’s agenda Profits and rational decision making Decision making when time is involved
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Exam this Wednesday Exam will not cover today’s lecture. Before the exam, read: University Policy on Academic Integrity
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What to bring
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Preparing for the exam Practice solving problems. Use the results to analyze your weak points. Review these topics. Office hours before exam: My regular hours Today 4:30 to 5:30 p.m., 303a NJ Hall Tomorrow 9:00 to 11:00 a.m., 401 Hickman Hall Cheng Gao Tomorrow 2:40 to 4:00 p.m., 404 NJ Hall Replacing his regular Thursday office hour
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The theory of the firm in microeconomics Model the behavior of the 10 million business units in the U.S. … and countless more abroad How do firms choose output levels? How do firms choose input levels? How are the production tasks of the economy divided among firms? Focus initially on the first of these questions
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The theory of the firm in microeconomics Model the behavior of the 10 million business units in the U.S. How do firms choose output levels? How do firms choose input levels? How are the production tasks of the economy divided among firms? Focus initially on the first of these questions Production Cost Supply
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Why does quantity supplied rise with price? Q $/Q S
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Assumed objective of firms: maximize profit Profit = Total Revenue – Total Cost
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Is profit maximization a plausible objective? Natural assumption for single proprietorships If you can somehow increase profits, you can increase your income and buy a more preferred bundle of consumption goods.
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Is profit maximization a plausible objective? Natural assumption for single proprietorships Not so clear when ownership is separated from control Principal-agent problem What motivates managers to act in the interest of stockholders?
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Lecture+9+October+6 - Todays agenda Profits and rational...

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