ECON101 Chapter Notes - Chapter 10: Opportunity Cost, Outsourcing, Perfect Competition

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Wokia Kumase

Document Summary

Refers to the idea that the owner of a firm might supply labour, but not take a wage. Efficient method is the one that uses a smaller amount of the more expensive resource and a larger amount of the less expensive resource. Depends on the relative cost of resources. In general, it is hard for the higher ups to monitor their works (e. g. shareholders can"t monitor the managers well and the managers can"t monitor their works well: three ways of attempting to cope with the problem, ownership. By assigning ownership/part-ownership, of a business to managers or workers, it is possible to induce a job performance that increases a firm"s profits: incentive pay. Pay related to performance (e. g. promoting an employee for good performance: long-term contract. Long-term contracts tie the long-term fortunes of managers and workers (agents) to the success of the principles the owners of the firm: coping with the principle-agent problem gives rise to different types of business organization.