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Econ: What is The Firm? 5 Views


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Description:

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

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Transcript

00:00

And finance Allah shmoop What is the firm Shmoop economic

00:07

theory of the firm says that firms are firm about

00:11

one thing Profit maximization The big PM means getting revenues

00:16

as high as possible and costs as low as possible

00:19

And that whole rationale is the reason firms will keep

00:22

producing until their last unit of production is where marginal

00:26

costs equal marginal revenue if they produce less than this

00:30

amount while they're missing out on some profit if they

00:32

produce Mohr than this amount while they be losing money

00:35

In theory firms are incentivized to produce produce produce until

00:39

profit is maximized The yin and the yang of the

00:42

firm is consumers Consumers want to maximize their utility I'ii

00:47

get the most bang for their buck Firms and consumers

00:50

do the cha cha cha ching dance creating the economy

00:54

as we know it Yeah but what about philanthropic firms

00:57

firms that will care about more than maximizing profits with

01:00

the globe getting warmer and animal rights movements picking up

01:03

steam and environmental problems costing Well uh you know problems

01:07

and with the Internet and the media making everyone intensely

01:10

aware of these issues while suddenly people want firms to

01:13

do something about it Well In response some firms have

01:16

integrated these consumer demands into their marketing in products to

01:19

keep those profits rolling in buying just coffee No How

01:23

about Fair Trade Coffee Fair trade Coffee is an example

01:28

of the way in which firms differentiate themselves by differentiating

01:33

their products Some consumers would rather pay for this differentiated

01:37

do gooder product Mohr Expensive Fair trade Coffee over less

01:42

expensive normal coffee firms can capture their own market share

01:46

through product differentiation if consumers are willing to pay for

01:49

it And in this case they basically are using remote

01:52

union labor inside of emerging market countries and kind of

01:56

donating a dollar a pound or so so those workers

01:59

can what it called Oh yeah eat So with regulatory

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policy or marketing or using quote philanthropy unquote to market

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products Regardless normal firm's capital market capitalist firms are in

02:11

the game of maximizing profits The better consumers feel about

02:14

buying something well the more they will consume usually and

02:17

the more profits and given company will make But consumers

02:20

aren't the only ones making the decisions behind the scenes

02:23

The true kings and queens of firms are these shareholders

02:25

that common shareholders the people who own the stock and

02:29

elect the board of directors who then hires the CEO

02:32

who hires everyone else right The directors of firms are

02:35

the ones doing the managing but the shareholders are the

02:37

ones pulling the purse strings right They vote with their

02:40

dollars The shareholders at different firms have different privileges but

02:43

in general shareholders are considered Company owners leased the common

02:46

shareholders and they usually elect people to run the show

02:50

in the way they want it run which is almost

02:52

always to maximize dollars while firms were shaped by both

02:55

shareholders and consumer demand there also the interface between micro

02:59

economics and macro economics on the micro scale While we

03:02

look at how firms make decisions and why they make

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the decisions they make what about hiring decisions and pricing

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decisions Well on the macro scale economists are looking at

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aggregate trends in firms such as unemployment rates turnover rates

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investment you know things that all add up to impact

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overall economic growth in or GDP yeah in the US

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Those numbers affect monetary policy like think the Federal Reserve

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and changing interest rates and fiscal policy think changes in

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government spending in taxes via Congress and the press Will

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firms are really just in the middle of it all

03:33

Profits consumer of shareholders governments and competing firms Regardless of

03:37

what Luda and Feral say the firms are the true 00:03:41.28 --> [endTime] moneymakers

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