All goods and services are subject to scarcity at some level. Scarcity means that society must develop some allocation mechanism – rules to determine who gets what. Over recorded history, these allocation rules were usually command based – the king or the emperor would decide. In contemporary times, most countries have turned to market based allocation systems. In markets, prices act as rationing devices, encouraging or discouraging production and encouraging or discouraging consumption in such a way as to find an equilibrium allocation of resources. We will construct demand curves to capture consumer behavior and supply curves to capture producer behavior. The resulting equilibrium price “rations” the scarce commodity. Markets are frequent targets of government intervention. This intervention can be direct control of prices or it could be indirect price pressure through the imposition of taxes or subsidies. Both forms of intervention are impacted by elasticity of demand. After this course, you will be able to: • Describe consumer behavior as captured by the demand curve. • Describe producer behavior as captured by the supply curve. • Explain equilibrium in a market. • Explain the impact of taxes and price controls on market equilibrium. • Explain elasticity of demand. • Describe cost theory and how firms optimize given the constraints of their own costs and an exogenously given price. This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see the Resource page in this course and onlinemba.illinois.edu.
3-1.3. Behavior Rule
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來自 University of Illinois at Urbana-Champaign 的課程
Firm Level Economics: Consumer and Producer Behavior
538 個評分
University of Illinois at Urbana-Champaign
538 個評分
課程 1（共 7 門，Specialization Managerial Economics and Business Analysis ）
從本節課中
Module 3: Firms, Production, and Costs
This module will introduce cost theory. Firms are interested in producing profits, which are the residuals when costs are subtracted from revenue. Earlier modules constructed demand curves. They give us an idea of how many units of product we can sell at different prices; this would be firm revenue. We will work to understand inputs, production, and costs.
與講師見面
Larry DeBrockDean Emeritus and Professor of Finance and Professor of Economics
University of Illinois, Urbana-Champaign College of Business Department of Business Administration
We have an idea about firms.
We know that firms are in the business of putting together inputs to make outputs.
They're going to sell those outputs.
What we're going to talk about now is behavioral rule.
Which basically says, "What are these guys doing?"
Our Behavior Rule is pretty simple,
firms want to maximize profits.
And, profits of the residual of revenues beyond cost.
We're going to write that down formally but I want
to take a moment to make sure we understand here,
right now we're talking about commercial entities.
Entities that are private firms trying to make profit to either give to the owners,
be it directly, sole proprietorships or partnerships or,
they are corporate owners, the shareholders.
But, this works just the same for not-for-profits.
Not-for-profits also have to worry about residuals over their costs.
They have costs of production, they'll make some money.
What they want to do with that money is different.
They're not going to go to somebody in terms of income, they're going to use it,
for example to subsidize a hospital,
they're going to use it to subsidize education,
there's all sorts of things that are going to do with it.
But they are still in the business of trying to make sure they have
enough residuals of revenue over cost so they can do their good and charitable things,
that's the reason they have not for profit status.
So, it's not they have a different set of rules,
it's just that they have a different use for that money.
We're going to focus our attention here on companies that are commercial.
They're going to use that money as profits.
And so, from now on,
when we want to talk about profit,
we're going to use some simplified notation for the word profit.
We'll use the Greek symbol pi.
So when you see the Greek symbol pi, that means profit.
Profit is just a residual of total revenue minus total cost.
Now, total revenue, we looked at a demand curve and we
had an idea that on a typical demand curve,
if this is output and this is price,
and this is the demand curve,
firms could see that if they were charging a price of
seven dollars and selling 2000 units,
their total revenue would just be price times quantity,
which in this case would be seven times 2000,
which would be 14000,
whatever the currency we're talking about.
But we don't have anything like that for total cost.
We haven't thought through this issue of total cost and that's why
we're looking at this module called the theory of the firm.
We want to understand where cost come from.
We know where cost come from.
Cost come from producing things,
firms hire inputs, or buy inputs.
Some firms don't hire, for example containers that they're going to put their product in,
they'll buy those but they're still spending cash and resources.
There's expenditures involved, that's where cost come from.
Every now and then you think back to the old cartoons,
shoemaker wakes up in the morning and
fairies have produced a whole bunch of shoes for him.
We don't have production fairies,
people actually have to pay cash to build things.
That's what we want to do, figure out what's this look like?
Before we go any further,
I want to talk a bit about the difference between what I call accounting profit,
what economists call accounting profits and economic profits.
So, let's think about this.
I'll tell you a little story first,
and then we'll quantify it.
Suppose I told you that,
you know you've got a nice job,
let's say you're making a nice living,
$70,000, working your way up the chain at your business.
And you decide, you know what?
I'm tired of this rat race.
I'm going to buy a stainless steel hot dog cart and put it on the corner of the street.
So, pick any street, Manhattan, San Francisco, Chicago,
London wherever you're going to drop down one of these hot dog carts.
Start making hot dogs. Sell them on the street.
That's a good business. Now, at the end of the year,
you have to do your taxes.
You hire an accountant, and the accountant comes and looks at everything.
You've got a really good accountant.
The accountant takes kept track of all your costs,
all your revenues and he's got even the fines you had to pay the policeman,
because you parked in the wrong spot one day and,
all the other things that happen in your business.
And he says at the end,
walks up and shakes your hand and says "I got to tell you,
you're really a great guy.
You made $60,000 this year.
Your net profit was $60,000!"
And you say, "Well, thanks a lot."
And in fact, the accountant being a good accountant reminds you that
you have to report that on Schedule C of the IRS,
that is the tax form because the taxpayer wants to know how much income did you make,
your net profit as well.
The accountant has provided you with all the revenue information to put on Schedule C,
and all the cost information to put on Schedule C for the tax authority.
But something's beginning to nag you in the back of your head.
And that's something that was beginning to nag you is that you gave up
a job making 70,000 to take a job making 60,000.
Now, you may say "Well you know what,
I'm my own boss, that's what I wanted all along."
Well let's put that aside for a moment.
To an economist, remember what we did from the very beginning,
we're thinking about resource allocation issues.
We're thinking about who determines where funds are put in.
We had that little Torn old sheet about computer chip prices back in 1990.
And we know what happened in that industry,
is that people put lots of money into the industry,
they started moving into industry and they made lots of returns.
Well in this case,
you're putting money into a hot-dog industry but the market is telling you
"That's pretty good but looks like you'd be better off in other areas".
Somebody's willing to pay you 70,000 for your talent,
rather than a 60,000 for putting it on the side.
So, to an economist,
we take all of the costs that the accountant can bring up,
we call those explicit costs and we have to add in the opportunity costs.
What could you have done in your next best line of business?
It's incredibly important that we think about that.
And so, I'm going to put out some terminology here.
I'm going to say that,
accounting profit is equal to total revenue minus total explicit costs.
Economic profit, but you might notice I didn't put
any subscript there because this is an Econ class so,
we don't have to subscript that.
We said if we've got a pi there that means econ.
Alright. We'll put the eco on there
if we're talking about something other than economics.
But right now, economic profit is equal to total revenue minus total explicit costs.
Everything your accountant told you when he or
she added up all those costs and, those opportunity costs.
What could you have been doing in your next best line of business?
So, economic profit for us is just total revenue minus total cost.
But for us, this total cost includes opportunity costs.
Economists will tell you that the good manager is the person who when the accountant
walks into the CEO's office and drops down the books and says "Boss,
even in this terrible climate we're having in the economy these days,
this quarter we made three million dollars profit.
You did a great job". Accountant turns around and walks out.
Good managers will ask the very first question,
"I know I made positive profits,
and I know that's going to be reported in the paper but the question is,
what could I have done elsewhere?
What if I just liquidated my assets and got out of making
Twinkies and started making automobiles.
What if I started figuring out new batteries?"
All these sorts of other possibilities.
My assets are tied up into this production and I made some positive profit.
But I have to keep asking myself the question,
was it really positive economic profit?
If there's something out there that could've made more profit than this,
I'm going to have to report this positive profit to the government,
and I'm going to pay taxes on it.
But damn! I wish I had that over there.
So, moving forward,
our job is to figure out a way that allows us to understand what this graph looks like.
