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Econ 307

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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.

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