Chapter 9
- A capitalistic firm is a group of resource owners bound by contracts where in: a) the inputs cooperate in joint production; b) one central party has contracts with the owners of the other joint inputs; c) the central party owns the inputs whose values depend most specifically on the group's performance; d) the central party holds the residual claim beyond obligations specified in advance; e) the central party can sell its position; and f) the central party directs the choice of productive activity of the team.
- The corporation is like a partnership in that is can be an association with joint owners. However it is unlike a partnership in that any member can sell his or her shares to anyone else without prior approval.
- Directing and controlling effective teamwork requires effective monitoring and revision of contracts and duties. Joint ownership reduces opportunistic behavior.
- Teamwork is monitored by agents of owners of the resources most specific to the activities of the team.
- Because common stocks readily reveal in their price the present capital value of the corporation, the corporation's current decisions and operations tend to be made in the light of their foreseeable consequences.
- Stock markets help capital value effects to be detected or revealed, thereby enhancing the usefulness of the corporate form in controlling resources and production.
- Bearing the uncertain consequences of any action is called risk bearing. Ownership of private-property rights has an essential feature of risk bearing. Insurance distributes this risk amongst people.
- Imperfect foresight into the future value of any productive resource will result in losses or profits to that input as the future is revealed-- true of labor, capital, resources, etc. As superior skills are discerned, superior inputs will obtain higher contractual incomes and less in the form of residual profits.
- Competition amongst firms for resources will bid up the superior resources to match the value of their product. Thus the future steam of values is consolidated into a present price.
- Accountants keep records of past expenditures and revenues. They do not record opportunity cost or present market values, bearing a differing idea of profit.
Chapter 10
- The price taker's marginal revenue is equal to the price of the product, because the price is constant regardless of how many units the price taker offers for sale. In terms of a price searcher, the marginal cost and marginal revenue will change based off the amount produced.
- The wealth-maximizing output rate of a price searcher is that rate at which the marginal cost is brought up to equality with the price. An output at which marginal cost equals price is often considered optimal in that the value of the extra output to consumers, measured by price, just equals its marginal cost to the firm.
- Any income received by some resource in excess of its operating costs but that does not cover its original (sunk) costs of production is called quasi-rent.
- If demand falls, resources specialized to this product will fall in value to what they are worth in their next best activity.
- The effects of a tax on the production of a good depend on how readily the productive resources can shift to making other goods at no less reward. If they can, the resources lose nothing, and consumers must pay the full amount of the tax. If they cannot make such a shift, they will have to take a loss and consumers do not have to pay it all.
- The cost of any act requires a careful statement of exactly what act is being costed.
- Two generalizations can be made about costs. First, the faster the rate of production of any good, the higher the costs of whatever amount is produced. Second, the larger the amount that is produced at any given rate, the lower the total cost per unit of output.
- If some costs are incurred to produce two products jointly, only the marginal costs of each of the joint products can be defined. Additionally, depreciation of a resource is the predicted reduction in value as the resources is used or ages.
Chapter 11
- Price searchers face steeply negative demand schedules in response to price, thus the marginal revenue is significantly less than the price. Some firms are price searchers because of economies of scale, marketing, or differences in tastes. Inventories, price stability and advertising are hallmarks of such firms.
- Brand names on products reduce information costs to consumers by indicating quality. This intangible asset is revealed through goodwill when a company is bought out.
- A seller who perceives marginal revenue significantly below price will produce only to where marginal cost equals marginal revenue rather than where it equals price. This is called monopoly distortion, since it is not being supplied at the value to consumers.
- Price searchers can use pricing devices such as price discrimination, tie-ins, and giveaways which are often used to achieve sales to customers who value the product at more than the marginal costs.