10.5.10 Econ

10.5.10 Econ - Labor is human resources – accountants...

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10/5/10 Econ Notes Principle Agent/Agency Problem – Ex. Your mom (the principal) tells you (the agent) to clean your room. You put everything under the bed (which was not your Mom’s objective). To solve the “agency problem,” your mom needs a better monitoring and compliance system in order to align the principal’s objectives with the agent’s behavior. Large firms are chock full of agency problems. So are government bureaus. Economists view a firm as a bundle of contracts (the contracts are with input suppliers). With those contracts, the firm incurs costs. Land, labor, and capital – the three fundamental building blocks of a firm’s inputs
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Unformatted text preview: Labor is human resources – accountants, sales personal, any human being with a contract to the firm (financial capital) – the machines and the technology that goes into the firm, for example a computer The organizing principle behind the land labor and capital is the Entrepreneur The Entrepreneur is the risk taker who has an idea for a particular good or service, he’s gonna hire some labor, some capital, some land. And he’s gonna assemble it in a way that no one has. Entrepreneur is someone who sees things that people don’t normally see...
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This note was uploaded on 02/24/2011 for the course ECON ECON 201 taught by Professor Elzinga during the Spring '09 term at UVA.

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