Total costs k cq c t graph of rms average cost curve

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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 on costs ∗ 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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