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ECON 208 - Notes, week of Oct 13

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McGill University
Economics (Arts)
ECON 208
Lee Ohanian

Adrienne Pacini ECON 208 WEEK October 13 2009 PRODUCERS IN THE SHORT RUN Chapter 7What are Firms Organization of FirmsA firm can be organized in six different ways o Single proprietorship one owner o Ordinary partnership two or more owners o Limited partnership including general and limited partners o Corporation has an identity of its own owners are not personally responsible o Stateowned enterprise owned by the government o Nonprofit organization established with the sole objective to provide goods and services to customers Financing of FirmsFinancial capital the profit a firm raises for carrying on its business o Including equity and debtEquity funds provided by the owners of the firmDebt funds borrowed from creditors outside the firmDividends profits paid out to shareholders of a corporation sometimes called distributive profitsBonds a debt instrument carrying a specified amount and schedule of interest payments and usually a date for redemption of its face value o Principle of the loan obligation to repay the amount borrowed o Redemption date time at which it must be paid o Term time between the issue date and redemption dateGoals of FirmsThe desire to maximize profits motivates all decisionsNeed for firms to be socially responsibleo Every firm has a responsibility to society Production Costs and Profits ProductionFirms use four types of inputs for production o Intermediate products goods that firms produce not for consumption by individuals but for purchase by other firms to help with production of other goods o Inputs provided by nature existing natural resources o Inputs provided by people including labour services investments human capitalo Inputs provided by the services of physical capital by machinesThe production function relates inputs to outputs o Describes the technological relationship between the inputs that a firm uses and the output that it produces o Function notation QfL K o Production is a flowCosts and ProfitsEconomic profit includes implicit and explicit costs
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