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
437 個評分
University of Illinois at Urbana-Champaign
437 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
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We have an idea about firms.
We know that firms are in the business of putting together inputs to make outputs,
and they're gonna sell those outputs.
And what we want to talk about now is, we want to talk about Behavior Rule.
Which basically says, what are these guys doing?
Our Behavior Rule's pretty simple.
Firms want to maximize profits.
Profits are the residual of revenues beyond cost.
We're gonna 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.
Hence these that are private firms trying to make profit.
To either give to the owners, be directly sole proprietorships or
partnerships, or their corporate owners, the share holders.
But this works just the same for not-for-profits.
Not-for-profits also have to worry about residuals over their cost.
They have cost of production.
They'll make some money, and what they wanna do with that money is different.
They're not gonna go to somebody in terms of income.
They're gonna use it, for example, to subsidize a hospital.
They're gonna use it to subsidize education,
there's all sorts of things they're gonna do with it.
But they're still in the business of trying to make sure they have
enough residuals of revenue over cost so
that they can do their good and charitable things.
That's the reason they have not-for-profit status.
So it's not that they have a different set of rules.
It's just that they have a different use for that money.
We're gonna focus our attention here on companies that are commercial.
They're gonna use that money as profits.
And so from now on, when we want to talk about profit,
we're gonna 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.
And profit is just the residual of total revenue minus total cost.
Now total revenue, we've kind of looked at a demand curve.
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 $7.00 and selling 2000 units,
their total revenue would just be price times quantity.
Which in this case would be 7 x 2000.
Which would be 14,000 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.
Well, we kind of 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 gonna put their product in.
They'll buy those, but they're still spending cash and resources.
There's expenditures involved.
That's where costs 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.
And that's what we want to do, is figure out what's this look like?
Before we go any further, I want to talk a bit about the difference between what
economists call accounting profit and economic profit.
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'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 gonna buy a stainless steel hot dog cart and
put it out on the corner of the street.
So pick any street.
Manhattan, San Francisco, Chicago, London, wherever.
You're gonna 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 got a really good accountant.
The accountant takes track of all your costs, all your revenues.
He's got even the fines you how 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 gotta 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, thanks a lot.
And in fact the accountant, being a good accountant,
reminds you you have to report that on Schedule C for you IRS.
That is, the tax form.
Because the tax people wants to know, how much income did you make?
Your net profit is whatever on that your accountant has provided you with.
All the revenue information to put on a Schedule C, and
all the cost information to put on Schedule C for your tax authority.
But something's beginning to nag you in the back of your head.
And that something that's 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 Larry, I'm my own boss.
That's what I wanted all along.
Well, let's put that aside for a moment.
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 the industry, and they made lots of returns.
Well in this case, you're putting money into a hot dog industry
that the market is telling you yeah, 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 $60,000 for
putting it on to 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 cost.
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 gonna put out some terminology here.
I'm gonna say that accounting profit is equal to total revenue
minus total explicit costs.
Economic profit, you might notice I didn't put any subscript there because this is
an Econ class, so we don't have to subscript that.
If we got a pi there, that means Econ.
We'll put the Accy 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 cost.
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 $3 million profit.
You did a great job.
The accountant turns around and walks out.
Good managers will ask the very first question.
I know I've made positive profits and
I know that's gonna 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 I could have made more profit than this,
I'm gonna have to report this positive profit to the government and
I'm gonna pay taxes on it.
But darn, 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.
