MGEC40H3 Lecture Notes - Lecture 4: Economic Surplus, Marginal Cost
10 Jul 2014
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Benefits of using the market: external supplier costs are lower due to scale economies, scope economics, and learning economies and enough competition exists so that there is a better price, your own internal costs may fall due to. Agency costs: costs related to goofing off on the job, cost of the lost output due to goofing and cost of the firm trying to reduce the goofing off. Influence costs: costs of misallocation and things like having a bigger office with a bigger title. Didn"t want to enter the market because if successful, the supplier will cut you off. Depends on the nature of the firm: avoid monopoly distortions. If there are two monopolies in a vertical chain, there is a possibility of the two monopolies merging. They"d set their price higher than marginal cost. The merged firm is more profitable than the sum of two separate monopolies. Dwl is also smaller and higher consumer surplus.
