Political Science 2211E Lecture Notes - Lecture 3: Profit Maximization, Outsourcing
17 Oct 2014
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Document Summary
The theory of the firm and the canadian market structure. Theory of the firm: produce what is consumed, basic unit of organization in most economies. Why do firms exist: economies of scale, efficient for production organized by scale, large firms can buy inputs in bulk, an advantage, scope, cost of business spread across entire firm. Same with private companies: contractor may be limited in suppliers. Ownership and control: widely distributed stock ownership means no single directors, controlled by management not owners. Principal agent problems: goal divergence, profit maximization may not be the best for the person in charge. Conflict of interest: size of a managers department relates to their own welfare. Increased personnel means increased importance: constraints includes takeover threat. Competes with private organizations (cbc: cooperatives legally incorporated. Types of competition: enough buyers and sellers to prevent control over prices, products relatively homogeneous, high barriers to entry, maybe significant start-up capital and expertise.
