Theory of the Firm - Uni Hohenheim · Theory of the Firm - Economics of ... • Game Theory II. The Evolution of the Modern Firm ... (Boeing vs. Airbus?, Pharmaceuticals? Car Industry?)

Institut fuumlr Haushalts- und Konsumoumlkonomik

Fg Oumlkonomik und Management sozialer Dienstleistungen

Prof Dr Christian Ernst

Theory of the Firm

- Economics of Strategy -


Winter Semester 2009 2010




Contents

I Introduction amp Basics

II Introduction Strategy and Economics

bull Why do we adopt an Economics Perspective

bull The need for principles

III Economic Primer Economic Concepts for Strategy

bull Costs

bull Economic Costs and Profitability

bull Demand and Revenues

bull Theory of the Firm - Pricing and Output Decisions

bull Perfect Competition

bull Game Theory

II The Evolution of the Modern Firm

bull Doing business in 1840 (US)


2Theory of the Firm




Literature and further Reading

Besanko David et al (2007) Economics of Strategy 4th Ed Evanston Illinois

Saloner Garth Shepard Andrea Podolny Joel (2001) Strategic Management 2nd Ed

New York

Brickley James A Smith Clifford W Jerold L Zimmermann (2008) Managerial

Economics and Organizational Architecture 5th Ed New York

3Theory of the Firm




Homepage

wwwuni-hohenheimdeinnovativehealth

Password

Nonprofit22

Exam

To be determined

4

Further Information

Theory of the Firm




Guest Lecture

ldquoPharmaceutical Industry Studies ndash Drug Discovery Processesrdquo has been

postponed from December 8th (1400 ndash 1600) to December 9th (1800 ndash 2000)

The lesson will take place at HS 09

5

Further Information Schedule

Theory of the Firm




WHY ECONOMICS

Introduction Strategy amp Economics

6Theory of the Firm

Introduction




7

Why do we adopt an Economics Perspective

Firms (corporations) can be analyzed from numerous perspectives

Possibilities include

Game theory (choice situations that involve rivalry)

Psychology (what individual motivations and behaviors shape organizations

and their performance)

Organizational Perspective (Need for performance measures in expert dominated

organizations like universities hospitals)

Political Science Anthropology etc etc

Theory of the Firm




8


Something to be said for multi-discipline approach BUT ldquodanger that we sacrifice depths

for breadthrdquo deep knowledge permits powerful hypotheses on firm decision making

firm behavior

Economics perspective requires analyst be explicit about key elements of the process

considered for instance

Decision makers (who are active players Whose decisions are ldquofixedrdquo)

Goals (what are dm‟s objectives profit maximizers vs multiple objectives)

Choices (what possible actions what strategic variables like prices (DRGs)

time horizon for decision under consideration)

Relationship between choices and outcomes (Uncertainty complexity)

Theory of the Firm




9


Economic theory is distinctive answers to these questions almost always obtained as

part of theory development clear link between assumptions and conclusions

ldquoAudit trailrdquo of thought that allows to distinguish between logically-derived propositions

and mere conjectures

Example

Profit-maximizing (goal) monopolist (decision maker) Cournot (quantity) competition (choices) under

certainty (relationship)

Demand function p = A-bx A gt o b gt 0 x gt 0 (relation)

Cost function K(x) = Kf + kvx Kf gt 0 kv gt 0 and A ndash kv gt 0 (relation)

Profit p(x) = px- K(x) Max

p(x)‟ = A-2bx- kv = 0 (p‟‟lt0) x(Abkv) = (A- kv) 2b = 0

Logically-derived proposition Fixed costs Kf are not decision-relevant in a Cournot-monopoly situation u

certainty

Conjecture 1 Fixed costs Kf are not decision-relevant under oligopolistic competition

Conjecture 2 Fixed costs Kf are not decision-relevant under uncertainty and risk-aversion

Conjecture 3 Firms that base short-term decisions on variable costs are always correct (Cost accounting 101)

Theory of the Firm




10

The need for principles

Multi-billion $ question What drives business success

Often-made (fallacious) assumption Watch and imitate successful firms

Whole industry and management concepts based on this (Benchmarking)

PetersWaterman (1982) ldquoIn Search of Excellencerdquo NY Harper

N = 43 long-term ldquosuperior performing firmsrdquo (profitability and growth)

Success-drivers ldquoclose to customerrdquo ldquoStick to the knittingrdquo and ldquoBias for actionrdquo

Wiersema (2001) The New Market Leaders NY Free Press

Studies ldquoleading firmsrdquo in the New Economy (Internet IT)

New market leaders are ldquoclose to customerrdquo ldquoskilled at segmenting marketsrdquo

ldquoDevelop new productsrdquo ldquointensive advertisingrdquo ldquoOutsource core activitiesrdquo

Theory of the Firm




11


Collins (2001) ldquoGood to Greatrdquo NY Harper

Firms that went from ldquogoodrdquo (above-average) performance to 15 years of ldquogreatrdquo

performance (stock return 3 x that of general market) Walgreens Wells Fargo

Phlipp Morris and Abbott qualified

Success-drivers ldquoleaders shun spotlight and work for firmrdquo ldquoStaffing is crucial =

right people in right placerdquo ldquoTechnology supports strategyrdquo

So what‟s the problem

Using currently successful firms as a standard for action Conjecture Other firms can

obtain similar results by mimicking them

Problem 1 Reasons for success often unclear and complex

ldquoThe Rise and Fall of the New Economy‟s Darling The Enron Storyrdquo

Theory of the Firm




12


Example

August 2000 Enron Stock trades for $9056 on NYSE

Praised as one of the most innovative and firms in the world great ldquoexamplerdquo for other firms

January 2002 Enron in Chapter 11 bankruptcy (what is that) ceased trading at NYSE at $ 067 per share

Until then biggest bankruptcy in US history (until Lehmann Brothers 2008)

More than 20000 people lost jobs life-savings and health care benefits

Investors lost more than $ 75 billion

Most of Enron success stories relied on ldquoaccounting tricksrdquo (off the balance sheet financing special purpose

entities)

Auditor Arthur Andersen convicted ending of a world-famous accounting firms

A good brief summary of the complete story is Wikipedia Entry ldquoEnron scandalrdquo

More details at

Healy Paul M Krishna G Palepu (Spring 2003) The Fall of Enron (PDF) Journal of Economic Perspectives 17 (2)

Real danger that you look up to the wrong ldquoidolsrdquo

Theory of the Firm




13


Problem 2 Successful firm may have a great internal management system that promotes

innovation (not easily identifiable from outside)

Problem 3 Are industry situation and market conditions comparable for

would-be imitators

Problem 4 Idiosyncratic factors (an engineering or design genius is impossible to imitate)

Problem 5 Successful strategies vs unsuccessful ones that have been tried

Example ldquoThe problem of ldquohindsightrdquo

XYZ Inc considers adoption of risky but innovative new technology (business software other than Oraclecopy or SAPcopy)

Scenario 1 Gamble pays off huge success ldquotechnology supports its strategyrdquo (good thing gurus will praise it)

Scenario 2 Software is a disaster but it may be rational to stick with it (sunk costs) gurus this firm lets

ldquotechnology determine its strategyrdquo (bad thing)

Real mistake was selecting the bad technology not its ongoing application

Managers cannot decide what to invest inwhat people to hire after the fact that‟s why manager work is risky and

well-paid

Conclusion

There is value in studying firm behavior to identify general principles

NOT to develop al list that is a blueprint for success (there is no such list)

Theory of the Firm




14


Further problems

For every winner there is a loser often using the same approaches (Wal-Mart vs KMart)

Bewildering variety of successes and failures (strategies)

Markets change Time-traveling manager (US Steel) from 1901 when firm was first whose

annual sales exceeded $ 1 billion today USX has to sell oil to stay in top 25 of US firms

Interpretation 1

Firm success and firm strategy is so complex that it is a matter of luck (lecture ends here)

Interpretation 2

Firm succeeded because their chosen management strategies best allowed them to

exploit profit opportunities that existed at the time or adapted to changing circumstances

I (and you since I am the professor ) buy into interpretation 2 firm success can be

understood by studying decision-making in terms of consistent principles of market

economics and strategic action odds for success increase when managers apply these

principles to the conditions and opportunities they face

What are these consistent principles

Theory of the Firm




15


Principles concern the ldquobig issuesrdquo a firm faces

Boundaries of the firm What should the firm do How large should it be What business

should the firm be in

Market and competitive analysis Nature of markets in which firm competes What

Competitive interactions prevail in those markets

Position and dynamics How should the firm position itself to compete what should be

The basis of its competitive advantage and how should it adjust over time

Internal organization How should the firm organize its structure and systems internally

Theory of the Firm




16


Boundaries of the firm

Boundaries define what the firm does in three dimensions

Horizontal how much if its product market does firm serve (size)

Vertical what does the firm do itself what is purchased from specialty firms

Corporate what is the set of distinct businesses the firm competes in

Examples

Boston Consulting Groupcopy 1960s Learning curve amp market growth addresses horizontal

boundaries

Planning tools like growth-share-matrices (BCG-matrix) address corporate boundaries

Virtual corporations (Amazon) address vertical boundaries

Theory of the Firm




17


Market and competitive analysis

Role of industry structure

M Porter (1980) in ldquoCompetitive Strategyrdquo Performance across industries is

not a matter of chance or accident

Examples

Even mediocre firms in the pharmaceutical industry have (by economy wide standards)

impressive profitability performance

Even top performing airlines achieve low profitability in the best of times

Why is that

Theory of the Firm




18


Position and dynamics

Position (static) Is the firm (at a given point in time) competing as a cost leader or using

a differentiation strategy What resources and capabilities are in place

Dynamics How does the firm accumulate resources and capabilities over time

How does the firm (over time) adjust to changing circumstances

(J Schumpeter ldquothe impulse of alluring profitrdquo amp ldquocreative destructionrdquo)

Examples

Think up some of your own (position and dynamics) and fill them in

(Boeing vs Airbus Pharmaceuticals Car Industry)

Theory of the Firm




19


Internal Organization

If concepts exist for boundaries markets position (expected) dynamics firms must

decide what organizational structure is needed to implement concepts

Examples

Direct monetary incentive and reward systems vs intrinsic motivation

Resource allocation within the firm (Internal capital markets)

Divisional organization vs centralized structures

Flow and processing of information within organization (not IT)

Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer

20Theory of the Firm

Economic Primer




Economic Primer

This chapter lays out the basic economic tools that will be used to develop the principles

you will study in this course

The five main parts will be

bull Costs

bull Demand prices and revenues

bull The theory of price and output determination by a profit-maximizing firm

bull The theory of perfect competitive markets

bull Game Theory

Basic ndash Equation

Profit = Revenue ndash Costs


Economic Primer




Costs

Statement of Costs

bull Presentation of costs most

Managers are familiar with

bull Information about what happened

during the past year

bull Essentially retrospective information


Economic Primer Costs

But what if a firm needs to know how its total costs would change if it

increased production above the previous year‟s level




Total Cost Function

Total cost function TC(Q) represents the relationship between a firmrsquos total costs (TC)

and the total amount of output (Q) it produces in a given time period

bull For each level of output the firm might produce

the graph associates a unique level of total cost

bull Efficiency relationship between total cost and

output (assuming that the firm produces in the

most efficient manner possible given its current

technological capabilities)

bull The only way to achieve more output is to use more

factors of production (labor machinery materials)

therefore the total cost function must slope upward








Fixed and Variable Costs

Whether costs are fixed or variable ultimately depends on the time period in which

decisions regarding output are contemplated

Variable Costs Fixed Costs

direct labor general and administrative expenses

commissions to salespeople property taxes

Variable and Fixed Costs Semifixed Costs

maintenanceinterval costs (cargo per truck)

Casting moulds

advertising and promotional costs

Fixed costs affected by other dimensions of the firm‟s operations

Electric utility ndash the costs to hook up houses to the local grid depend primarily on the

numbers of subscribers to the system (not to the total amount of electricity sold)




Average Cost Functions

The average cost function AC(Q) describes how the firmrsquos

average or per-unit-of-output costs vary with the amount

of output it produces

If total costs were directly proportional to output ndash

for example

or more generally

then average cost would be a constant This is because







Often however average cost will vary with output Average cost may rise fall or remain

constant as output goes up

bull When average cost decreases as output increases

there are economies of scale

bull When average cost increases as output increases

there are diseconomies of scale

bull When average cost remains unchanged with respect

to output we have constant returns to scale

A production process may exhibit economies of scale over one range of output and

diseconomies of scale over another

Output level Qrsquo is the smallest level of output at which economies of scale are exhausted

and is thus known as the minimum efficient scale






Marginal Cost Functions

Marginal cost may be thought of as the incremental cost of producing exactly one more

unit of output

When output is initially and changes by units and one knows the total cost at each

output level marginal cost may be calculate as fallows

Example






Relationship Between Total Cost Function and Marginal Cost

Marginal cost often depends on the total volume of output The marginal cost function

MC(Q) is based on the total cost function TC(Q)

Because the total cost function becomes steeper as Q gets larger the marginal cost

curve must increase in output Therefore at higher levels of output such as Qrsquorsquo a one-

unit increase in output has a greater impact on total cost and the corresponding marginal

cost is higher






Average and Marginal Cost Functions

Businesses often use information about average cost to estimate the marginal cost

of a change in output But average cost is generally different from marginal cost

The exception is when total cost vary in direct proportion

to output

Basically

bull When average cost is a decreasing function marginal

cost is less then average cost

bull When average cost is an increasing function marginal

cost is greater than average cost

bull When average cost neither increase nor decrease in output ndash because it is either

constant or at a minimum point ndash marginal cost is equal to average cost

29


Theory of the Firm




Long-Run versus Short-Run Average Cost Functions

The curves labeled are the short-run average cost functions

associated with small medium and large plants respectively

For any level of output the optimal plant size is the

one with the lowest average cost

The long-run average cost function is the ldquolower

envelope ldquo of the short-run average cost functions

This curve shows the lowest attainable average cost for

any output when the firm is free to adjust its plant size

optimally

The long-run average cost function exhibits economies of scale







Short-run average costs are the sum of average fixed costs (AFC) and average variable

costs (AVC)

As the volume of output increases average fixed costs become smaller which tends to

pull down SAC

Offsetting this is the fact that average variable costs rise with output which pulls SAC

upward






Sunk versus Avoidable Costs

Sunk costs are investment costs incurred before a certain activity takes place which

cannot be recovered by the possible sale of the asset they produced

bull Highly specific investment (eg RampD) are usually sunk costs

bull Sunk costs represent barriers to exit A firm which has incurred high sunk costs will

have difficulties in deciding to exit the market even if it sees good opportunities

outside

bull Therefore when weighing the costs of a decision the decision maker should ignore

sunk costs and consider only avoidable costs

bull A firm that is deciding whether to enter into a certain business will have to consider

with a particular attention the sunk costs and the risk that during the operations period

they might not be recovered Sunk costs in this perspective represent barriers to

entry

In the case of an exporter an example of sunk costs could be the costs of analyzing the

market and of exploring opportunities and seeking commercial partners






Economic versus Accounting Costs

Accounting costs like statements of costs are grounded in the principles of accrual

accounting which emphasize historical costs

But accounting statements are designed to serve an audience outside the firm

for example lenders and equity investors

This concept says that the economic cost of deploying resources in a particular activity is

the value of the best foregone alternative use of those resources

Consider the resources that have been purchased with funds that stockholder provide to

the firm To attract these funds the firm must offer the stockholders a return on their

investment that is


Economic Primer Economic Costs and

_Profitability

Business decisions require the measurement of economic costs which are based on

the concept of opportunity costs







investment that is at least as large as the return that they could have received from

investing in activity of comparable risk

Example

Firmrsquos asset (could have been liquidated) $100 million

bull By tying their funds up in the firm investors lose the opportunity to invest in an activity

providing an 8 percent return

bull Because of wear and tear of plant and equipment the value of the assets decline by

1 percent over the year

The annualized cost of the firmrsquos assets is then

(008+001) x $100 million = $9 million per year



_Profitability




Economic Profit versus Accounting Profit

Accounting Profit = Sales Revenue ndash Accounting Cost

Economic Profit = Sales Revenue ndash Economic Cost

= Accounting Profit ndash (Economic Costndash Accounting Cost)

Example

Consider a small software development firm that is owner operated

bull Revenue of euro 1000000

bull Incurred expenses on supplies and hired labor of euro 850000

bull Owners best outside employment opportunity - a salary of euro 20000

Accounting Profit euro 1000000 - euro 850000 = euro 150000

Economic Profit euro 1000000 - euro 850000 - 200000 = - euro50000

The Software business destroyed euro 50000 of the ownerrsquos wealth



_Profitability




Economic Profit and Net Present Value

Economic Profit is closely related to the concept of net present value from finance

Example

Consider a firm that contemplates constructing a plant with capacity to produce

100000 units per year

bull Production expenses (when producing at capacity) are $5 per unit of output

bull Market price is $25 per unit

bull Cost of building the plant is $15 million

bull Infinity long live (ie it does not depreciate)

bull Cost of capital is 10 percent

This rate reflects what the firmrsquos investors could make from alternative investments and thus reflects the appropriate opportunity cost for evaluating

the investment in the plant



_Profitability





Should the firm build the plant

Economic Profit

Total Revenue $25 million per year

Total production cost (accounting cost) $50000 per year

Annualized opportunity cost $15 million x 01 = $15 million

Economic Profit 25 ndash 05 ndash 15 = $05 million per year

Since the investment in the plant is expected to yield a positive economic profit year after

year the firm should build it



_Profitability





Net Present Value (NPV)

The Present value of a cash flow C received in t years at an interest rate i is equal to the

amount of money that must be invested today at the interest rate i so that in t years the

principal plus interest equals C

The present value of a stream of cash flow received over a period of years is the sum of

the present value of the individual sums

Which can be written more compactly



_Profitability






The net present value of an investment is simply the present value of the cash flows the

investment generates minus the cost of the investment

The term in the summation is the present value of perpetuity A perpetuity is a level cash

flow received each year forever The present value of a perpetuity is equal to the cash

flow divided by the interest rate Ci With this formula we can rewrite NPV as

Since the net present value is positive the firm should undertake it

Note that the calculation NPV and economic profit are similar (What is exact relation)



_Profitability




Demand Curve

The Demand function describes the relationship between the

quantity of product that the firm is able to sell and all the

variables that influence that quantity

The demand curve is generally downward sloping

bull The lower the price the greater the quantity demanded

bull This relationship is called the law of demand

The law of demand may not hold if high prices confer prestige or enhance a productrsquos

Image or if price signals quality


Economic Primer Demand and Revenues

Of special interest is the relationship between

quantity and price




The Price Elasticity of Demand

The price elasticity of demand η is the percentage change

In quantity brought about by a 1 percent change

in price

Thus over the range of price between $500 and $575 quantity demanded falls at a rate

133 percent for every 1 percent increase in price

bull If η is less then 1 we say that the demand is inelastic DA

bull If η is greater then 1 we say that the demand is elastic DB






High price sensitivity

- standardized products (airfare movie tickets paper for printers)

- durable consumer goods (cars major appliances)

- price of inputs for sensitive end products (goldjewelry crude oil gasoline)

Low price sensitivity

- information-intensive products products with spot demand (legaltax services)

(search goods vs experience goods vs credence goods)

- Goods subject to Moral Hazard (Health Insurance Subsidies)

- Goods with high switching costs

- Goods with commitment effects (DVD Blu-Ray and relevant disks)






Brand-Level versus Industry-Level Elasticities

Just because the demand for a product is inelastic the demand facing each seller of that

product doesnrsquot have to be inelastic too

Example

bull Demand for Cigarettes ndash well below one

bull General increase in price only modestly affect overall cigarette demand

bull Only one brand increases prices demand for that brand would probably drop

substantially because consumers would switch to the now lower priced brands

Brand-Level elasticities are higher than industry-level elasticities because

consumers can purchase other brands when only one brand raises its price






Total Revenue and Marginal Revenue Functions

A firmrsquos total revenue function denoted by TR (Q) indicates how the firmrsquos sales

revenues vary as a function of how much product it sells

A firmrsquos marginal revenue MR(Q) is analogous to its marginal cost

It seems plausible that total revenue would go up as the firm sells more output and thus

MR would always be positive But with a downward sloping demand curve this is not

necessarily true







To sell more the firm must lower its price Thus while it generates revenue on the extra

units of output it sells at the lower price it loses revenue on all the units it would have

sold at the higher price

In general whether marginal revenue is positive or negative

depends on the price elasticity of demand

bull When demand is elastic so that η gt 1 it follows that MR gt 0 In this case the

increase in output brought about by a reduction in price will raise total sales revenues

bull When demand is inelastic so that η lt 1 it follows that MR lt 0 Here the increase in

output brought about by a reduction in price will lower total sales revenue






Pricing and Output Decisions

The theory of the firm assumes that the firmrsquo ultimate objective is to make

as large profit as possible But how is the optimal output determined

Change in Total Revenue

Change in Total Cost

Change in Total Profit

bull If MR gt MC the firm can increase profit by selling more (QΔ gt 0) and to do so it should lower its price

bull If MR lt MC the firm can increase profit by selling less (QΔ lt 0) and to do so it should raise its price

bull If MR = MC the firm cannot increase profits either by increasing or decreasing output It follows that output and price must be at their optimal level


Economic Primer Theory of the Firm ndash

_Pricing and Output Decisions





An alternative way of thinking about these principles is to express MR in terms of the

price elasticity of demand Then the term MR = MC can be written as

Total variable costs are supposed to be directly proportional to output so that MC = c

The percentage contribution margin PCM on additional units sold is the ratio of profit per

unit to revenue per unit or PCM = (P-c) P Algebra establishes that

bull A firm should lower its price whenever the price elasticity of demand exceeds the

reciprocal of the PCM on the additional units it would sell by lowering its price

bull A firm should raise its price when the price elasticity of demand is less than the PCMof the units it would not sell by raising its price








Example

P = $10

c = $5

PCM = 050

The firm can increase profits by lowering its price if its price elasticity of

demand η exceeds 105 = 2

P = $10

c = $8

PCM = 020

In this case the firm should cut its price if η gt 5

The lower a firmrsquos PCM (eg because its marginal cost is high) the greater its price

elasticity of demand must be for a price-cutting strategy to raise profits







Perfect Competition

A special case of the theory of the firm is

the theory of perfect competition

bull An industry with many firms producing

identical products (consumers choose

among firms solely on the basis of price)

bull Firms can enter or exit the industry at will

bull Because firms in a perfectly competitive industry produce the same identical

products each firm must charge the same price


Economic Primer Perfect Competition

The firm takes the market price as given and thus faces a horizontal demand

curve at the market price This horizontal line also represents the firmrsquos

marginal revenue curve MR




Perfect Competition

A single firmrsquos supply curve is shown in the graph on the left The industryrsquos supply curve

SS is shown in the graph on the right These graphs an industry of 1000 identical firms

Thus at any price the industry supply is 1000 times the amount that a single firm would

supply






Perfect Competition

Complemented by the demand curve

bull At the price P each firm is producing

its optimal amount of output q

bull The quantity demanded equals the

quantity Q supplied by all firms in

the industry

Each firm is earning a positive profit because at q the price P exceeds cost AC(q)

resulting in a profit on every unit sold

New firms would thus like to enter this industry






Perfect Competition

bull At price P new entrants are attracted to the industry As they come in the industryrsquos

supply curve shifts to the right resulting in a reduction in market price

bull Entry ceases to occur when firms are earning zero economic profit (price equals

average cost)

bull Firms are choosing the optimal output and earning zero economic profit when they

produce at the point at which market price equals both marginal cost and average

cost (also at minimum efficient scale)






Perfect Competition

bull When Demand falls the demand curve shifts from D0 to D1 and price would initially

fall to Prsquo

bull Firms would earn less than they could earn elsewhere and would eventually begin to

leave the industry

bull As this happens the supply curve shifts to the left from SSrsquo to SS1

The industry shakeout ends when price is again P (Implications of zero profit)






Game Theory

The perfect competitive firm faces many competitors but in making its output decisions it

does not consider the likely reactions of its rivals This is because the decisions of any

single firm have a negligible impact on market prices

The key strategic challenge of a perfectly competitive firm is to anticipate the future path

of prices in the industry and maximize against it

But in many strategic situations there are only a few players

bull Power Supply

bull Pharmaceutical Industry

In such cases the firm has to ldquoget inside the mindsrdquo of its competitors Game theory is

most valuable in precisely such contexts It is the branch of economics concerned with

the analysis of optimal decision making when all decision makers are presumed to be

rational and each is attempting to anticipate the actions and reactions of its competitors


Economic Primer Game Theory




Economics of Strategy

5 Auflage

(ca 5490euro)

bull ab 100 Ex ca 4190euro


Auslieferung voraussichtlich im Dezember

4 Auflage

(ca 5490euro)



Auslieferung voraussichtlich im November

55




Games in Matrix Form and the Concept of Nash Equilibrium

Example

bull An industry consisting of to

firms (Alpha and Beta)

bull Identical products

bull Each must decide whether to increase its production capacity in the upcoming year

(Each firm will make its capacity decision simultaneously and independently)

bull Alpharsquos strategy maximizes its profit given Betarsquos strategy

bull Betarsquos strategy maximizes its profit given Alpharsquos strategy

In this game the Nash equilibrium is (EXPAND EXPAND ) that is each firm

expands its capacity

In this situation we say that Expand is also a dominant strategy



To identify the ldquolikely outcomerdquo of games game theorists use the concept of a Nash equilibrium At a Nash equilibrium outcome each player is doing the best it can given the

strategies of the other players




Food for thought ndash what do you make of this

B1 investigate cost report

B2 do not investigate cost report

A1 report truth on cost situation

A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)







Dominant strategies are not inevitable in many games players do not possess dominant

strategies

The Nash equilibrium in this game is (SMALL SMALL)

The Nash equilibrium does not necessarily correspond to the outcome that maximizes the

aggregate profit of the players

At the Nash equilibrium expectation equals outcome ndash expected behavior and actual

behavior converge (self-enforcing focal points)

This would not be true at non-Nash equilibriums




Game Trees and Subgame Perfection

In many situations decisions making is sequential rather then simultaneous and it is

often more convenient to represent the game with a game tree instead of a game matrix

Suppose that Alpha seeks to preempt Beta by making its capacity decision a year before

Betarsquos Thus by the time Beta makes its decision it will have observed Alpharsquos choice

and must adjust its decision making accordingly



15

16

18





To derive the SPNE we use the so-called fold-back method

bull We start at the end of the tree and for each decision ldquonoderdquo (represented by

squares) we find the optimal decision for the firm situated at that node

bull We assume that Alpha anticipates that Beta will choose a profit-maximizing response

to any strategic move Alpha might make

The SPNE is for Alpha to chose LARGE Beta responds by choosing DO NOT

EXPAND

Note that the outcome of the sequential-move game differs significantly from the

outcome of the simultaneous-move game



In analyzing this game tree we see what is known as a subgame perfect Nash equilibrium (SPNE )




61

1840 1910 and Today

The Evolution of the Modern Firm


The evolution of the modern firm




62


1840 1910 and Today

The years 1840 1910 and 2003 represent widely disparate business conditions

A historical analysis of business conditions illustrates the durability of fundamental

economic principles behind business strategy

Theory of the Firm




63

The evolution of the modern firm(Slides 58 ff Copyright Richard Ponarul

California State University Chico)

Doing business in 1840 (US)

Numerous intermediaries

Farmers to factors to brokers agents to buyers

John Burrows as an example for a factor (Iowa potatoes to New Orleans)

Substantial price risk for participants (lack of information)

Broker

Matches buyer amp seller

Farmer

(cereals potatoes)

Factor

(transport to market)

Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64



Infrastructure in 1840

Infrastructure (Definition) assets that assist in the production or distribution of

goods and services that an individual firm cannot easily provide itself

Such as basic research transportation telecommunication and finance

What is the basic economic problem of infrastructure

Public Goods Individual firm that improves a highway bears full cost of the

investment but captures only fraction of benefits Other firms along the

improved highway get its use for free (freerider problem)

No-one actually improves the highway

Role of GOVERNMENT in providing Infrastructure

1840 Poorly-developed infrastructure by modern standards

Theory of the Firm




65



Transportation in 1840

Transitory period from horse to rail (steam engine) but in 1836 US had

only 175 miles of track (Germany 1835 6 km 1840 548 km)

1850 Many different gauges no tracks west of Appalachians no

co-ordination of schedules

Predominant way of transportation inland waterways (Erie Canal 1825

connects Eastern Cities (NY Boston etc) to Great Lakes)

Ocean transport Still 95 done by sailing ships

Consequences

No safe reliable transportation for large volumes Firms reluctant to

expand dominance of the small family-owned business

Theory of the Firm




66



Communications in 1840

Predominant communication system was US Postal Service (horse and

stage coach) Letter from Waterburry CT to Philadelphia 2 (7) days in

good (bad) weather Very expensive 1-sheet letter cost 185 cents

First considerable improvements telegraph 1844 (seller contacts with

factors customer contacts with agents) railroad scheduling 1851 (1853

23000 miles of cables) transatlantic cables 1870 Western Unioncopy on of

Largest company in US

Consequences

Impossible to obtain on-time information on prices in different locations

and changing market conditions

Major problem of co-ordination between even two locations

dominance of small-family owned firm

Theory of the Firm




67



Finance in 1840

Most businesses were partnerships credit hard to obtain

Loans mostly at high interest on a personal basis

Existing stocks not widely traded (risk price information)

Short-term credit provided by 788 small private banks

Smoothing of cash-flow cycles BUT Severe cycles of boom

and bust (high risk)

Beginnings of modern finance consortia funding Erie canal

But as yet no futures market to reduce risk

Consequences

Severe limitations on finance especially for large ventures


Theory of the Firm




68



Production Technology in 1840

Production Technology Application of scientific and technical

Knowledge to production processes

Limited use of modern power (steam engines)

Technology yet undeveloped Beginning of standardized parts in clock and firearms

(interchangeable parts yet in the future) but low volumes

(Economies of Scale)

Consequences

Substantial technological constraints dominance of small-family

owned firm

Theory of the Firm




69



Government in 1840

Role of government Resolve commercial disputes and set rules under which

businesses operate

Investment in infrastructure (1820-1838 18 states advanced $ 60 mio canals

$ 43 mio railroads $ 45 mio for roads)

1869 Government sponsored first transcontinental railroad

1884 Prime meridian conference Washington DC

Consequences

Very limited role of government major breakthroughs in infrastructure

yet to come

Theory of the Firm




70



Theory of the Firm

Doing business in 1840 ndash a summary

1 Technology limited production to traditional levels

2 Without transportation infrastructure and access to large

markets

mass production technologies would not have been useful

3 Without communication infrastructure information on prices

sellers and buyers were not readily available

4 Given the tremendous risk banks were unwilling to finance

business expansion

5 Under these conditions businesses were small and informally

organized




71



Illustration of principles ndash competition between cities

Early 1800s fierce competition between Cincinnati Toledo Peoria St Louis and Chicago to become regionbdquos

center of commerce

Chicago won due to significant changes in infrastructure and technology (1860 Chicago Board of Trade had virtual

Monopoly on the grain trade) Chicago meatpackers (Armour and Swift dominated the industry)

Chicago conducted business differently from competing cities by taking advantages of new technologies

Swift and Armour quickly adopted refrigerated freight car slaughter hogs and cattle at chicago before weight (and

value) loss

McCormick used grain elevators to efficiently sort store ship grain from midwest

Breakthrough financial innovation Grain Futures trading on the Chicago Board of Trade Risk reduction

Meatpackers and Grain merchants required large-scale investments in facilities (cattle pens meatpacking plants grain

storage) rail transportation what is required to make such large scale investments pay off

Look at maps following slide what was ultimately responsible for Chicago‟s success

Theory of the Firm




72



Theory of the Firm

Growth of American Railroads From 1840 to 1890




73



The World in 1910 (US) ndash the era of mass production

Dominance of the huge vertically-integrated firm

Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production

(Field exploitation)

Processing

Refineries (joint

Production)

Wholesale amp retail

Sales of products

Co-ordination Co-ordination

Theory of the Firm




74



The World in 1910 (US) ndash governance issues the problem of ownership and control

GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75




Period of rapid technological development (Bessemer process

assembly line production (Ford Model T)) High-volume low

cost manufacturing (Steel automobiles chemicals aluminum)

and distribution

Technology advances in managing these huge organizations

(document production typewriters copying (carbon copy

Photocopying analysis (adding machines) IBMcopy Burroughscopy

Remingtoncopy

Consequences

Technology advances allowed for high-volume firms relying on throughput in

certain industries (Steel Automobiles) but not others (furniture textiles farming)

Theory of the Firm




76




High-volume (throughput) manufacturing requires developed transportation

1910 dominance of railroads

easy to obtain raw materials from and distribute goods over long distances (Searscopy)

Consequences

Transportation allowed for high-volume firms relying on throughput in certain industries

Theory of the Firm




77



Communication in 1910

US Postal Service and telegraph of continued importance

Telephones use became widespread after initial problems had been solved

management from distant headquarters quick communication with wholesalers

and customers production planning (batches)

Consequences

Communications supported throughput-dependent large firms

Both for internal management and supplier and customer relations

Theory of the Firm




78



Finance in 1910

Existing financial centers (NYSE) to raise equity (IPOs underwriting) and efficiently

trade shares of large industrial firms ruthless bankers

(JP Morgan)

Credit bureaus made credit information easily accessible installment financing for

customers expanded markets

Public disclosure of accounting information (mandatory reporting) size and scope of

new firms triggered accounting innovations

(railroad cost accounting Sears inventory turnover)

Consequences

Sufficiently-developed financial institutions to support throughput-dependent

large firms

Theory of the Firm




79



Government in 1910

Government regulation extended to such areas as corporate law antitrust and

worker and product safety

Increased regulation forced managers to collect a lot of data on internal operations

Mandatory secondary schooling provided the labor force needed by large bureaucratic

organizations

Consequences

Dangers of new system (product safety investor fraud collusion) increased

role of government regulation

Theory of the Firm




80




1 Expanded infrastructure allowed firms to expand their markets

product lines and production scale

2 New technologies allowed high volume standardized production

3 Growth of financial infrastructure made large scale firms viable

4 Resulting problems (labor disputes collusion monopolies) called

for greater role of government

Theory of the Firm




81

Aside 1 Separation of Ownership and Control

Theory of the Firm

Consumption on the job ndash Separation of Ownership u Control

Jenny Taylor has founded the Taylor Hardware Store Inc He is the

sole owner (100) Letbdquos assume (for simplicity) that he can engage in

two unobservable utility-generating activities only

e1

Activity that increases firm value (work hard find customers etc)

e2

Activity that increases his utility (Consumption on the job large car

nice office good looking male secretary)

what is the optimal level of activities from Jennybdquos point of view




82


Theory of the Firm


Assume that Jenny has the following (net-) utility function

Firm value is created by

( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm


Optimal level of activities if Jenny is 100 owner-manager

Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm


What happens if Jenny sells 50 stake in her firm to outside

investors

Jenny still benefits 100 from every $ spent on e2 but only 50 of

value creating activity e1 accrue to her

( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm


What is the impact of these new activity levels on firm value

Solution for general stake a (0 lt a lt 1) a Jenny‟s shares

(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm


What will naiumlve investors pay for a 50 stake in Jenny‟s company

05 1875 =9375

What will a rational investors pay for a 50 stake in Jenny‟s

company

05900=450

In a rational world Jenny will get a price that is only less than half()

of the potential value of the firm = Agency problems of equity




87


Theory of the Firm


Agency-costs (of equity)

Difference between firm value if 100 owner-operated and firm value

If stake a is sold to outside investors (borne by owner)

9375 ndash 450 = 4875 gt 50 potential value()

Possible explanation for

Difficulty of raising equity capital

Jenny would like to ldquopost a bondrdquo (bonding activity) that she will

behave (small company car only will limit personal activities to $ 500

a month)

Jenny will accept outside control (monitoring by third party)

(board control audited financial statements)




88


Theory of the Firm


Real-world phenomena

Short-term easily terminated contracts for top-management

Control bodies like Boards Of Directors Committees (corporate

governance)

Stock Options and Stocks as part of management pay

Audit an Disclosure Obligation (Ad Hoc Statements)

One of the most-cited articles in business literature

Jensen M Meckling W (1976) bdquoTheory of the Firm Managerial Behavior Agency Costs and Ownership

Structure‟ in Journal of Financial Economics 3(3) 305-360

I expect you to have read that article




Contents

I Introduction amp Basics

II Introduction Strategy and Economics

bull Why do we adopt an Economics Perspective

bull The need for principles

III Economic Primer Economic Concepts for Strategy

bull Costs

bull Economic Costs and Profitability

bull Demand and Revenues

bull Theory of the Firm - Pricing and Output Decisions

bull Perfect Competition

bull Game Theory

II The Evolution of the Modern Firm



2Theory of the Firm







New York



3Theory of the Firm




Homepage


Password

Nonprofit22

Exam

To be determined

4

Further Information

Theory of the Firm




Guest Lecture




5


Theory of the Firm




WHY ECONOMICS


6Theory of the Firm

Introduction




7










Theory of the Firm




8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)













New York



3Theory of the Firm




Homepage


Password

Nonprofit22

Exam

To be determined

4

Further Information

Theory of the Firm




Guest Lecture




5


Theory of the Firm




WHY ECONOMICS


6Theory of the Firm

Introduction




7










Theory of the Firm




8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Homepage


Password

Nonprofit22

Exam

To be determined

4

Further Information

Theory of the Firm




Guest Lecture




5


Theory of the Firm




WHY ECONOMICS


6Theory of the Firm

Introduction




7










Theory of the Firm




8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Guest Lecture




5


Theory of the Firm




WHY ECONOMICS


6Theory of the Firm

Introduction




7










Theory of the Firm




8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










WHY ECONOMICS


6Theory of the Firm

Introduction




7










Theory of the Firm




8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










7










Theory of the Firm




8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










8




firm behavior








Theory of the Firm




9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










9






Example








certainty




Theory of the Firm




10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










10












Theory of the Firm




11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










11













Theory of the Firm




12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










12


Example








entities)



More details at



Theory of the Firm




13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










13





would-be imitators










well-paid

Conclusion



Theory of the Firm




14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










14


Further problems





Interpretation 1


Interpretation 2








Theory of the Firm




15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










15










Theory of the Firm




16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










16







Examples


boundaries



Theory of the Firm




17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










17






Examples




Why is that

Theory of the Firm




18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










18








Examples



Theory of the Firm




19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










19





Examples





Theory of the Firm




ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










ECONOMIC CONCEPTS

FOR STRATEGY

Economic Primer


Economic Primer




Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Economic Primer




bull Costs




bull Game Theory




Economic Primer




Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Costs

Statement of Costs













Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Total Cost Function



























Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)




















Casting moulds













for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)















for example

or more generally



























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)






























unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)












unit of output



Example












cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)
















cost is higher










to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)














to output

Basically







29


Theory of the Firm













optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)



















optimally









costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)












costs (AVC)


pull down SAC


upward












outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)
















outside






entry

















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)



















investment that is



_Profitability











Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)















Example










_Profitability








Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)














Example










_Profitability






Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)












Example












_Profitability






Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)












Economic Profit









_Profitability














_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)




















_Profitability















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)





















_Profitability




Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Demand Curve












quantity and price







in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)













in price




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)




























Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)













Example


















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)
















necessarily true




















































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)
























































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)









































Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)


























Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)











Example

P = $10

c = $5

PCM = 050



P = $10

c = $8

PCM = 020










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Perfect Competition

















Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Perfect Competition




supply






Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Perfect Competition






the industry









Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Perfect Competition




average cost)









Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Perfect Competition


fall to Prsquo


leave the industry








Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










Game Theory







bull Power Supply












5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)











5 Auflage

(ca 5490euro)




4 Auflage

(ca 5490euro)




55





Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)











Example






















A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)














A2 cheat on report



B1 B2

A1 (100-50) (00)

A2 (-500200) (5000)








strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)














strategies


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)


















15

16

18











EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)

















EXPAND









61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










61

1840 1910 and Today







62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










62


1840 1910 and Today




Theory of the Firm




63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










63








Broker


Farmer

(cereals potatoes)

Factor


Sells to

Customer

(Local and abroad)

Agent


Places order with

Theory of the Firm




64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










64














Theory of the Firm




65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










65











Consequences



Theory of the Firm




66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










66











Consequences





Theory of the Firm




67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










67



Finance in 1840









Consequences



Theory of the Firm




68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










68










Consequences


owned firm

Theory of the Firm




69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










69



Government in 1840


businesses operate





Consequences


yet to come

Theory of the Firm




70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










70



Theory of the Firm




markets





business expansion


organized




71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










71





center of commerce





value) loss






Theory of the Firm




72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










72



Theory of the Firm





73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










73





Oil Company

Corporate Center

Future

Field

Development

(Prospecting)

Drilling

amp Oil production


Processing

Refineries (joint

Production)


Sales of products


Theory of the Firm




74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










74




GMcopy in 1920s

Corporate Center

Division

Buick

Division

Chevrolet

Division

Cadillac

Professional

managers

ShareholdersHire

Accountability

Vice president

operative dm

Vice president

operative dm

Vice president

operative dm

Corporate finace

R amp D

New Models

Theory of the Firm




75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










75







and distribution




Remingtoncopy

Consequences



Theory of the Firm




76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










76







Consequences


Theory of the Firm




77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










77








Consequences



Theory of the Firm




78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










78



Finance in 1910



(JP Morgan)






Consequences


large firms

Theory of the Firm




79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










79



Government in 1910





organizations

Consequences



Theory of the Firm




80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










80










Theory of the Firm




81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










81


Theory of the Firm





e1


e2







82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










82


Theory of the Firm




( ) ( )( )

21 2

1 2 1 1 2 2

UtilityCost

( ) 100 1002

e eU e e e e e e

1 1 1( ) (100 )W e e e




83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










83


Theory of the Firm



Value of the firm

( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )100 2 0

25

U e ee e e

e

U e ee e e

e

e e

(25) (100 25) 25 1875W




84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










84


Theory of the Firm



investors



( ) ( )( )

21 2

1 2 1 1 2 2

NutzenKosten

( 0) 100 10052

e eU e e e e e e

( ) ( )

( )

1 21 1 2

1

1 22 1 2

2

1 2

( )100 2 0

( )1

0

00 2 0

10 30

5U e e

e e ee

U e ee e e

e

e e




85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










85


Theory of the Firm




(10) (100 10) 10 900 50() dgt eclineW

( )( )

( )( )

11

22

50 3 10

3 1

100 500

3 3 1 3

dee

d

dee

d

a

a a

a a

a

a




86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










86


Theory of the Firm



05 1875 =9375


company

05900=450






87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










87


Theory of the Firm










a month)






88


Theory of the Firm





governance)










88


Theory of the Firm





governance)







Documents

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