Rationales for Establishing Firms
Input/Output Efficient scale/technology
Transactions costs Contracts
Firm Objectives
• Maximize profits
• Maximize growth
• Maximize sales
• Maximize stock price
• Maximize managers’ income/career path
Firm Organization
• Vertical integration
• Organization of management
• Functional/divisional separation
• Compensation system
Forms of Firm Ownership
Corporation
Companies whose capital is divided into shares that are owned by individuals who have limited responsibility for the debts of the company.
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