Econ 307
Terms
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- Diseconomies of scale
- Garmin Industries has to ask the worker to stay behind overtime...if they want to produce more. Diseconomies of scale have higher fixed costs.
- 3 Facts of a Firm
- 1. There are many decision makers within a firm. 2. The primary objective of most decision makers is not to maximize the value of a firm. (Banking Industry) 3. Firms often use internal pricing and market allocate internal resources "some companies give you a charge card and you have a limit and you can use only a certain amount"
- Economies of Scope
- The cost of producing 2 or more products together is less than the cost of producing them seperately -McDonalds grill, use the grill to cook more of the products than just 1)
- 5 Reasons for a firm to exist
- -To Reduce Transaction Costs & Achieve Information Specialization -To Enjoy Economies of Scale and Economies of Scope -To Diversify Risk -To solve the problem of specific assets -To post bond to traders through reputation
- Examples of Firms Clustering
- Silicon Valley & IT NYC & Financial Boston & Analytical Instruments Hospitality & Tourism in Vegas
- 7 Reasons for firms to cluster
- -Share Intermediaries (Dressmaker & Button) -Sharing Labor Pool to transfer from unsuccessful to successful (Silicon Valley) -Job & Worker Matching:Trial & error to find those good at jobs -Knowledge Sillovers:Start-up companies and Uiversities such as Boston and Science -Economies of Scale in local public goods and social opportunities:CSUN and classes offered all in one place so it's convenient and as the output rises the costs decline. -Reduce Transportation Costs:Bauxite and smelting close together. -To form work organization to enjoy economies of scale and avoid diseconomies of scale(Shopping Mall and shops together)
- 3 Elements of Decision Theory
- 1. Specify Objective (Maximize Profits) 2. Gather Optimal Information (Sost rises with more infomration available. MB=MC 3. Control Information: R&D, Public Relations, Regulation or working with governments.
- Network Effect
- Windows operating system, the morepeople that join the more valuable it is. The network increases as more an dmore users are added on. Social networking is very important.
- Free-rider problem
- People want to benefit but don't want to pay for the benefits (term paper) -Identify them -Peonalize them or discontinue benefits
- Specific Assets
- Non-redeployable physical and human investments are specialized and unique to task. The production of a certain component may require investment in specialized equiptment
- 4 Types of Buying Decisions
- Complext Behavior: high involvement in purchase & see significant differences in brands. (cars) Dissonance-reducing buying behavior (when consumers are highly involved and little differences) Travel. Habitual buying behavior: low buying involvment and little differences (salt, pepper, sugar) Variety-seeking buying behavior: consumers are lowly involved in purchase but perceive differences in brands (cereals, clothing) in these situations consumers do alot of brand switching due to free samples, coupons, and advertising.