Lecture+9+October+5

Lecture+9+October+5 - Todays agenda Profits and rational...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Today’s agenda Profits and rational decision making Decision making when time is involved
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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
Background image of page 2
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
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Why does quantity supplied rise with price? Q $/Q S
Background image of page 4
Assumed objective of firms: maximize profit Profit = Total Revenue – Total Cost
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Is profit maximization a plausible objective? Natural assumption for single proprietorships
Background image of page 6
Is profit maximization a plausible objective? Natural assumption for single proprietorships B A M
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
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? Incentives through compensation tied to profit Threat of hostile takeovers
Background image of page 8
What are costs? Economic Profit = Total Revenue from commodities sold – Total Opportunity Cost of the factors of production used to produce them
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Opportunity cost of a productive input = value of the best alternative foregone Key issue : What has the firm sacrificed to use the input?
Background image of page 10
Opportunity cost: two cases purchased and hired factors Price paid is a good reflection of the value of the foregone alternatives imputed costs Price is a misleading indicator of foregone value OR No explicit price is paid for the productive resource
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/10/2011 for the course ECON 220:102 taught by Professor Rubin during the Fall '11 term at Rutgers.

Page1 / 44

Lecture+9+October+5 - Todays agenda Profits and rational...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online