E303lect34F09 - Hand back Tests and HW 11 HW#12 Posted Due...

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November 20, 2009 Hand back Tests and HW 11. HW#12 – Posted. Due Wednesday Lecture 34 REVIEW___________________________________________________: V. Chapter 6. The Organization of the Firm. Ch. (6.) A. Overview and Motivation B. Optimal Input acquisition 1. Ways to acquire inputs 2. Specialized Investment a. Reasons for. b. Relationship specific exchange c. Contracting and Transactions Costs 3.Optimal Input procurement 4. Final Comments C. Getting the Most out of Human Inputs Lecture _______ __ ________________________________________________. V. The Organization of the Firm: Optimal Contracting, and Motivating Resources to Work Efficiently (Chapter 6) A. Overview and Motivation. In the preceding chapter we discussed the decision rule for the optimal combination of inputs. That is, firms should hire resources until MP L = MP K w r This rule assumes that the inputs are working on their production function. Two possible deviations from this rule are the subject of this chapter: (a) Is the firm obtaining resources at the minimum possible price? Clearly, the firm will suffer inordinately high costs if this condition is not met. (b) Are inputs working efficiently? As mentioned in Chapter 1, in many instances the incentives of individuals and firms do not naturally overlap. Compensation schemes may in many instances be altered to make incentives more compatible. Consider these questions in turn. B. Methods of Procuring Inputs : The material in this section builds off research by O.E. Williamson, an economist whose work underlies the ‘new’ theory of the firm upon which much of modern management is constructed. 1. Ways to acquire inputs. Generically, there are three ways to acquire inputs: a. Spot purchases . This is purchasing on an as needed basis at the then prevailing market price. Spot exchanges allow firms to avoid vertical integration, and to 1
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concentrate on their primary specialty. Homogenous inputs that are available at a competitive price are often purchased on a spot basis. b. Contract purchases. This is an agreement to purchase inputs under some continuing arrangement that specifies the terms of exchange. In many instances, particularly when the arrangement is fairly complicated, terms of the exchange are not entirely spelled out. These areas are a problem of incomplete contracts and are a basis for negotiation. c. Internal production.
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This note was uploaded on 04/12/2010 for the course ECON 303 taught by Professor Shrestha during the Fall '08 term at VCU.

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E303lect34F09 - Hand back Tests and HW 11 HW#12 Posted Due...

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