Chapter 21 Production and Business Organization

Chapter 21 Production and Business Organization - Theory of...

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Theory of the Firm Business Organization Chapter 21
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Market Coordination and Prosperity (visualizing market allocation) Businesses/producers incur costs by bidding for resources from households. Households use the income from businesses to bid for consumer goods. Consumers must be willing to cover the cost of resources for businesses to continue supply goods. * Note the shift from “ ” to a more specific case of “ .” Why?
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Owners are called “residual claimants” because they receive what remains after all other contractual agreements are honored. Private property rights of “residual claimants” provides a strong incentive to structure the firm to keep cost low relative to consumer value. Team production: a production process in which employees work together under the supervision of a “coach.” In principle, all work could be contracted out, requiring no employees. Organization of the Firm: Incentives and cooperation
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Team production creates incentive problems : Shirking There is tendency for some “team member s” not to do their share of the work (long breaks, too much “surfing,” etc.) Remedies include monitoring and incentives given to team members to avoid shirking .
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This note was uploaded on 04/01/2012 for the course ECON 101 taught by Professor Balaban during the Fall '07 term at UNC.

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Chapter 21 Production and Business Organization - Theory of...

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