ECN 201 Chapter 6&7 Notes

Chapter 6
 Shareholders-anyone who owns stock in the company
 Firms-Anything that takes inputs and produces outputs
 A firm’s profits legally belong to people who own firm assets
 Conflict of interest- aline interest between managers and owners
 We cant monitor what an executive is doing 100% of time, so we have
contracts to hit benchmarks
 Piece rate pay- getting payed for how many you produced (UBER)
Workers effort
 Fear of being fired,work ethic and feeling of responsibility
 Employment rent=cost of job loss
 Health deteriorates if there unemployed
 Reservation wage= value of next best option
 Employment rent= wage-reservation wage-disutility of effort
 Firms start at the lowest just to get the employees, paying more

Chapter 7
 Maximize profit for companies, can affect workers and consumers
 Inputs-firm-outputs
 How much do we pay workers? How much do we produce?
 People buy for certain prices vs others
 Market power- have a name in the market(Apple)
 Price elasticity- if I raise the price how much more or less do I sell
Increasing returns to scale
 Output increases faster than inputs-learning by doing
-Falling average costs
Constant returns to scale
-outputs and inputs increase proportionally
 Cost function-how much are costs related to production