The Firm and Financial Markets 04/09/2014
any kind of corporation or organization, small business, large public company, bank, multi national
a firm is an entity that combines together factors of production to provide a service and generate value
a firm will generally look towards what the marginal revenue will be, and the marginal cost of what it would
be to bring that to the market place. As long as marginal revenue exceeds marginal costs then you should
continue to produce that good.
most corporations would agree that profit maximization is a useful starting point.
firms do not try to profit maximize on a day to day basis.
Corporations often say that there objective is to maximize shareholder wealth.
you can do this by maximize the future stream of profits.
How does a corporation start up?
you have to have some shareholders to get money. Therefore the company is owned by several people
To create this legal entity you have to have shareholders (the owners of the company)
the start up capital then comes from shareholders, once lots of people want our product we have to
determine the demand of our funds.
have to establish our inventory, and make that into finished goods inventory by determining a production
you need to shareholders to start up the company but in order to be successful you have to continue to
make money to pay expenses and inventory products. Sometimes people run into trouble and need money
so they turn to the financial market.
When corporations turn to the bank, the banks don’t want to take the place of shareholders in the
company and need a schedule of how they are going to be paid back. The banks will try for you to find
another source of money before resorting to them (ie, shareholders or equity)
Long Term/Short Term Needs
Corporate managers and shareho