Technological efficiency occurs when the firm

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What is technological and economic efficiency? Technological efficiency occurs when the firm produces a given output by using the least amount of inputs Economic efficiency occurs when the firm produces a given output at the least cost Depends on the relative costs of resources What is information and organization? A command system is a method of organizing production that uses a managerial hierarchy Managers always have incomplete information about what is happening in the divisions of the firm for which they are responsible An incentive system is a method of organizing production that uses a market-like mechanism inside the firm Firms use commands when it is easy to monitor performance or when a small deviation from an idea performance is costly Firms use incentives when monitoring performance is either not possible or too costly to be worth doing The principal-agent problem is the problem of devising compensation rules that induce an agent to act in the best interest of a principal Coping with the principal-agent problem: ownership, incentive pay, and long-term contracts Three main types of business organizations: proprietorship, partnership, and corporation Unlimited liability – the legal responsibility for all the debts of a firm up to an amount equal to the entire wealth of the owner Joint unlimited liability
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