firms Flashcards
transaction costs
costs of acquiring info about the good to be traded, and enforcement costs
search and info costs
- identifying mutual gains
- gathering info
bargaining and decision costs
- negotiating and agreement
- meetings
- communication
policing and enforcement costs
- making sure people stick to the agreement
markets are useful for…
spot transactions
- lots of buyers bargaining over a price
firms are useful when…
- tasks aren’t clearly defined
- breaking short-term contracts some with large transactions
agency dilemma
rational agents have the incentive to shirk.
- college textbooks (someone else’s’ money)
employment rents
cost of job loss
lost income, relocation, health insurance
employment rents are higher when…
there’s unemployment, there are many other benefits
reservation wage
value of next best option
best response curve
shows the optimal amount of effort workers will exert for each wage offered - it represents the firm’s feasible frontier
workers slope of the best response curve
MRT
firms best response curve
minimizing the cost per unit of effort (w/e)
isocost line
the cost of effort (w/e) is the same at all points in an isocost line
slope of isocost curve
MRS= the rate at which the employer is willing to increase wages to get higher effort.
