BUSINESS ECONOMICS AND MANAGERIAL DECISION MAKING

Abstract

Firms are major economic institutions in market economies. They come in all shapes and sizes, but have the following common characteristics: g Owners. g Managers. g Objectives. g Apoolofresources(labour,physicalcapital,¢nancialcapitalandlearnedskillsand competences) to be allocated roles by managers. g Administrative or organizational structures through which production is organized. g Performance assessment by owners, managers and other stakeholders. Whatever its size, a ¢rm is owned by someone or some group of individuals or organiza-tions. These are termedshareholdersand they are able to determine the objectives and activities of the ¢rm. They also appoint the senior managers who will make day-to-day decisions. The owners bear the risks associated with operating the ¢rm and have the right to receive the residual income or pro¢ts. Whereownershiprights are dispersed, controlof the ¢rm may not lie with the shareholders but with senior managers. This divorce between ownership and control and its implication for the operation and performance of the ¢rm is at the centre of many of the issues dealt with in this book.