ECON 1011 Chapter Notes - Chapter 10: Process Function, Comparative Advantage, Production Function
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ECON 1011 Full Course Notes
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Document Summary
A firm is an organization created to produce goods good for firm when they sell products. There is a legal structure: sole proprietorship. One individual owns all the capital and keeps profit assets are liable in disputes: partnership. Multiple people own capital, share profit, and require a contract to identify shares and operating rules. All members" assets are liable in disputes: corporation. Shares in corporation are sold to finance capital purchases. All share owners claim a portion of profit. Owners" personal assets are not at risk. Role of owners or entrepreneurs: have an original idea that is profitable; ability to manage firm; earn excess profit; bear risk of failure; hire people. Explicit wages to workers, payments for intermediate inputs, payments for shipping, insurance, electricity. Opportunity costs difficult to measure; affect decisions about what to produce; focuses on comparative advantage: each person should produce with lowest opportunity cost; opportunity cost includes both explicit and implicit costs.
