Book contents
- Frontmatter
- Contents
- Preface
- PART ONE INTRODUCTION
- PART TWO PREFERENCE, CONSUMPTION, AND DEMAND
- PART THREE THE FIRM AND THE INDUSTRY
- 6 The Business Firm
- 7 Equilibrium in the Product Market – Competitive Industry
- 8 Monopolies, Cartels, and Networks
- 9 Product Quality and Product Variety
- 10 Competition Among the Few: Oligopoly and Strategic Behavior
- 11 Dealing with Uncertainty – The Economics of Risk and Information
- PART FOUR FACTOR MARKETS AND INCOME DISTRIBUTION
- PART FIVE EXCHANGE
- PART SIX ECONOMICS AND TIME
- PART SEVEN POLITICAL ECONOMY
- Answers to Selected Questions
- Name Index
- Subject Index
6 - The Business Firm
from PART THREE - THE FIRM AND THE INDUSTRY
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface
- PART ONE INTRODUCTION
- PART TWO PREFERENCE, CONSUMPTION, AND DEMAND
- PART THREE THE FIRM AND THE INDUSTRY
- 6 The Business Firm
- 7 Equilibrium in the Product Market – Competitive Industry
- 8 Monopolies, Cartels, and Networks
- 9 Product Quality and Product Variety
- 10 Competition Among the Few: Oligopoly and Strategic Behavior
- 11 Dealing with Uncertainty – The Economics of Risk and Information
- PART FOUR FACTOR MARKETS AND INCOME DISTRIBUTION
- PART FIVE EXCHANGE
- PART SIX ECONOMICS AND TIME
- PART SEVEN POLITICAL ECONOMY
- Answers to Selected Questions
- Name Index
- Subject Index
Summary
Part II of this text analyzed consumer choices – the demand side of the market for goods and services. Part III now deals with the supply side. This chapter explains the nature of business firms and the relations among entrepreneurs, owners, and managers. The chapter then describes the firm's cost and revenue functions and its profit-maximizing level of production.
WHY FIRMS? ENTREPRENEUR, OWNER, MANAGER
Business firms are artificial creations, organized to produce goods and services for the market. But individuals or groups can produce for the market without creating a firm. So if firms are not essential, why are they formed?
Firms exist to take advantage of team production while minimizing costs of contracting. All but the simplest production processes call for team effort. Manufacturing typically requires machine operators, inspectors, and clerks together with nonlabor inputs such as electricity, materials, and buildings. The same holds for mining, transportation, retail sales, and so forth. Still, team production could take place without forming a firm. A movie could be produced via a multilateral contract specifying the types and quantities of inputs to be provided, at stated places and times, by the producer, director, actors, camera operators, and so on. The contract would also need to define each person's financial obligations and rewards. Such multilateral deals do occur. But the high costs of negotiation and enforcement make them rare. If instead a firm produced the movie, only bilateral contracting would be required.
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- Chapter
- Information
- Price Theory and ApplicationsDecisions, Markets, and Information, pp. 157 - 190Publisher: Cambridge University PressPrint publication year: 2005
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