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Unformatted text preview: ntage of economies of scale and
scope. • What decisions to delegate where? Total Costs = k + cQ c $T • Graph of ﬁrm’s average cost curve M&S 452 — Strat and Org
c 2008 Scott Schaefer • Or total cost? • Suppose the ﬁrm asks the division to minimize average cost? • Suppose Q E 10 • Let’s think about a Functional Form organization that makes its manufacturing
division a cost center. 12 – Properties:
∗ Useful when employees in the division control revenues, but have little eﬀect
∗ Basing rewards on revenue-based measures only tailors the performance
measure to things the employees can control. This shields employees from
cost-based risk, and allows the ﬁrm to oﬀer higher powered incentives. – Examples? • Revenue Centers M&S 452 — Strat and Org
c 2008 Scott Schaefer • CoOA Application: Because of the limitations of “cost” as a performance
measure, some decisions cannot be delegated to cost center managers. • Cost minimization (for whatever m...
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- Spring '14