ECON 103 Chapter Notes - Chapter 8: Limited Liability, Average Variable Cost, Opportunity Cost
9 Jan 2017
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Chapter 8 - cost and the supply of goods: Incentives, cooperation, and the nature of the firm: Residual claimants - in a market economy, firm owners are residual claimants. They have the right to any revenue after costs have been paid. This provides strong incentive for owners to keep the costs of producing output low. Contracting: owner contracts with individual workers who work independently. Team production: workers are hired by a firm to work together under supervision. With team production owners must reduce the problem of shirking. Owners will attempt to control shirking through both incentives and monitoring. Incentive problem that arises when the lack of information makes it difficult for the purchaser (principal) to determine whether the seller (agent) is acting in the principal"s best interest. Firm owners face this problem when dealing with employees. Make up 72% of the firms, but only 4% of total business revenue. 10% of firms; 14% of business revenues.
