1. Theory of the Firm

2. Rationales for Establishing Firms Input/OutputEfficient scale/technology Transactions costsContracts

3. Firm Objectives Maximize profits Maximize growth Maximize sales Maximize stock price Maximize managers’ income/career path

4. Firm Organization Vertical integration Organization of management Functional/divisional separation Compensation system

5. Forms of Firm Ownership Sole proprietorshipPartnership

6. 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.

7. Corporations Benefits Costs Objectives Conflicts Separation of ownership from control Expected returns to stockholders > bondholders