ECO304K Ch 9-10 Notes - ECO304K Chapters 9-10 I. Firm...

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ECO304K Chapters 9-10 I. Firm – organization that employs factors of production & organizes them to a. Objective = maximize profits b. Reward of a business = profit i. Total Revenue ii. Total Cost iii. Economic profit = Total Revenue – Total Cost c. 3 Factors Affect a Firm’s Performance i. Technology ii. a. 2 Kinds of Production Efficiency i. Minimizing inputs used (technological efficiency) – labor-saving method of production more technologically efficient… has to be feasible (technological efficiency depends on feasibility of cost saving) ii. Minimizing costs (economic efficiency) – using little of scarce (& expensive) resources (depends on price of resources) b. Firms want to be economically efficient in order to maximize profits (or they risk being taken over/going out of business) a. 2 Types of Organization (Management) i. Command – supervisors collect information from their subordinates & command them to do things in a specific way ii. Incentives – managers create incentives (bonuses) for workers in such a way that it will maximize profits
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iii. Principal-agent problem – problem of devising compensation rules that
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This note was uploaded on 04/16/2008 for the course ECON 304K taught by Professor Ledyard during the Spring '08 term at University of Texas at Austin.

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ECO304K Ch 9-10 Notes - ECO304K Chapters 9-10 I. Firm...

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