MGCR 293 Chapter Notes -Substitute Good, Economic Equilibrium, Demand Curve

• School: McGill University
• Department: Management Core
• Course: MGCR 293
• Professor: Tariq Nizami

Document Summary

Theory of the firm: a firm"s objective is to maximize it"s wealth, which is the present value of its future profits. Three fertile profit-generating areas: innovation, risk and market power. Principal-agent problem: when managers pursue their own objectives, even though this decreases the profit of the owners. Shifts in the demand curve are caused by a number of reasons (known as non-price determinants): If consumer has a more important income, or tastes in the product increases, then the demand curve will shift to the right. Equilibrium price increase if demand curve shifts right / equilibrium price decrease if demand curve shifts left. Shifts in the supply curve are caused by a number of reasons (known as non-price determinants): If lower-cost production technology is developed, then managers will be willing to sell more units at any price, then the supply curve will shift to the right.