Lecture11 - Lecture 11 Introduction to Production Why firms...

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Lecture 11 Introduction to Production Why firms? Factors of production Average, marginal and total output Productivity and diminishing marginal returns
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Why are there firms? “Firms exist to take advantage of team production while minimizing costs of contracting.” (Hirshleifer, Glazer, Hirshleifer)
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Firms need a governance structure Operations: Management Finance: Ownership: May be separate from management. The advantage of the corporate structure: Limited liability Transferable shares But, a corporation needs a monitoring relationship between owners and managers: subject of compensation packages.
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Theory of Production Firms turn inputs into outputs The firm chooses output levels and a combination of inputs to maximize profits: this depends on demand for the products and the costs of inputs Factors of production include labor, L and capital, K In the short run , one factor of production may be fixed ; in the long run all factors are variable
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This note was uploaded on 01/17/2012 for the course ECON 100A taught by Professor Safarzadeh during the Fall '09 term at UC Irvine.

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Lecture11 - Lecture 11 Introduction to Production Why firms...

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