September 12 th
Theory of the firm:
- PV of all expected future profits = TRt – TCt/ (1-i) ^t
- Input constraints – specialized EQP, skilled labor, essential materials
- Legal constraints – minimum wage, rates, health & safety standards, taxes, enviro laws
Managerial interests + Principal-Agent problem:
- Owners want managers to maximize the value of the firm by maximizing the profits of the firm.
- Profit reducing objective of managers who are not owners but work as management in the
- *missing text here*
What is economics?
- Study of how scarce or limited resources are used to produce goods & services in order to
satisfy needs & wants
- Study of decision making in a world of scarcity
- Wants: what people would buy if income was unlimited
- Needs: people buy to survive