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Lecture

Economic and technological efficiency.docx

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Department
Economics
Course
ECON 101
Professor
Wokia Kumase
Semester
Fall

Description
Oct 30 1.When you’re looking the technological efficiency: input Economic efficiency: output a) A,B,C are all technological efficient.. But only B is economic efficient(depends on the total cost) b) A,B,C are all technological efficient.. But only A is economic efficient(depends on the total cost) c) A,B,C are all technological efficient.. But only C is economic efficient(depends on the total cost) ** if we can produce the same quantity with less input, then it is technological efficient. 2. Two systems A) command systems *using managerial hierarchy B) Incentive systems * using a market-like mechanism to induce workers to perform in ways that maximize the firm’s profit. The bonus at the end of the year is a policy in incentive systems..to encourage workers to work hard. *works for particular industry: sells industry C) mixing the systems Using command system: when it is easy to monitor performance Using incentive system: monitoring performance is impossible or it is costly 3. The principal-agent problem ->devising compensation rules that induce an agent to act in the best interests of a principal Eg. Stockholders: principals managers: agent 4. Coping with the principal-agen problem A) Ownership B) incentive pay If you reach a certain level of profit=> bonus C) long-term contracts 5. Types of business organization A) sole proprietorship *Owned by single individual * the owner has unlimited liability or legal responsibility for all debts incurred by the firm( may lose everything) * Advantage: tax only once.. Profits are taxed the same as the owner’s other income B) partnership * with two or more owners who have unlimited liability(both of owners are responsibility... May lose every asset you have) * owners need to come to the agreement that how to divide up the profits * profits are taxed as the personal income of the owners C) corporation *owned by one or more stockholders with limited liability (legal liability only for the initial value of their investment.) * persona
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