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Econ: What is The Firm? 5 Views

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What is The Firm? The firm is an economic theory that basically says that every decision or behavior engaged in by a firm has the sole goal of maximizing profit.

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Transcript

00:00
And finance Allah shmoop What is the firm Shmoop economic
00:07
theory of the firm says that firms are firm about
00:11
one thing Profit maximization The big PM means getting revenues
00:16
as high as possible and costs as low as possible
00:19
And that whole rationale is the reason firms will keep

00:22
producing until their last unit of production is where marginal
00:26
costs equal marginal revenue if they produce less than this
00:30
amount while they're missing out on some profit if they
00:32
produce Mohr than this amount while they be losing money
00:35
In theory firms are incentivized to produce produce produce until
00:39
profit is maximized The yin and the yang of the
00:42
firm is consumers Consumers want to maximize their utility I'ii
00:47
get the most bang for their buck Firms and consumers
00:50
do the cha cha cha ching dance creating the economy
00:54
as we know it Yeah but what about philanthropic firms
00:57
firms that will care about more than maximizing profits with
01:00
the globe getting warmer and animal rights movements picking up
01:03
steam and environmental problems costing Well uh you know problems
01:07
and with the Internet and the media making everyone intensely
01:10
aware of these issues while suddenly people want firms to
01:13
do something about it Well In response some firms have
01:16
integrated these consumer demands into their marketing in products to
01:19
keep those profits rolling in buying just coffee No How
01:23
about Fair Trade Coffee Fair trade Coffee is an example
01:28
of the way in which firms differentiate themselves by differentiating
01:33
their products Some consumers would rather pay for this differentiated
01:37
do gooder product Mohr Expensive Fair trade Coffee over less
01:42
expensive normal coffee firms can capture their own market share
01:46
through product differentiation if consumers are willing to pay for
01:49
it And in this case they basically are using remote
01:52
union labor inside of emerging market countries and kind of
01:56
donating a dollar a pound or so so those workers
01:59
can what it called Oh yeah eat So with regulatory
02:02
policy or marketing or using quote philanthropy unquote to market
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products Regardless normal firm's capital market capitalist firms are in
02:11
the game of maximizing profits The better consumers feel about
02:14
buying something well the more they will consume usually and
02:17
the more profits and given company will make But consumers
02:20
aren't the only ones making the decisions behind the scenes
02:23
The true kings and queens of firms are these shareholders
02:25
that common shareholders the people who own the stock and
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elect the board of directors who then hires the CEO
02:32
who hires everyone else right The directors of firms are
02:35
the ones doing the managing but the shareholders are the
02:37
ones pulling the purse strings right They vote with their
02:40
dollars The shareholders at different firms have different privileges but
02:43
in general shareholders are considered Company owners leased the common
02:46
shareholders and they usually elect people to run the show
02:50
in the way they want it run which is almost
02:52
always to maximize dollars while firms were shaped by both
02:55
shareholders and consumer demand there also the interface between micro
02:59
economics and macro economics on the micro scale While we
03:02
look at how firms make decisions and why they make
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the decisions they make what about hiring decisions and pricing
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decisions Well on the macro scale economists are looking at
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aggregate trends in firms such as unemployment rates turnover rates
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investment you know things that all add up to impact
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overall economic growth in or GDP yeah in the US
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Those numbers affect monetary policy like think the Federal Reserve
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and changing interest rates and fiscal policy think changes in
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government spending in taxes via Congress and the press Will
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firms are really just in the middle of it all
03:33
Profits consumer of shareholders governments and competing firms Regardless of
03:37
what Luda and Feral say the firms are the true 00:03:41.28 --> [endTime] moneymakers
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