Lecture, three hours. Enforced requisites: courses 11, 101. Enforced corequisite: course 106IL. Enrollment priority to Business Economics majors. Role of firms in traditional economic theory and modern developments in theory of firms. Topics include relationship between employer and employee, principal-agent models and moral hazard, formal versus relational contracts, successful firms as coherent systems of mutually supporting parts, property rights and asset ownership, boundaries of firms, employment versus independent contracting, internal organization of firms, role and levels of firm hierarchy. P/NP or letter grading.