Lecture 5 Flashcards
What is the difference between entrepreneurial and formalized organization?
Entrepreneurial organization:
- Improvisation
- No decomposition of problems
- Decision-making primarily based on system 1 processing
- Lack of competencies leads to greater use of system 1
Formalized organization:
- Planning
- Decomposition of problems
- Development of routines (from system 2 to system 1)
- Decision-making based on system 2
What are the five dimensions of organizational development?
Growth through -
- Creativity
- Direction
- Delegation
- Co-ordination
- Collaboration
What assumptions are to be made when talking about standard microeconomic theory?
The firm can be described through a production function with a single objective
Pareto-optimal allocation of resources – no other allocation of scarce resources can make someone better of while making no one worse off
Perfect competition (relaxed in modern microeconomic theory)
Perfect information (relaxed in modern microeconomic theory)
Abstract from the environment
Maximizing (profit, value of the firm, sales)
What assumptions does the neo-classical theory lie upon?
People haverational preferencesbetween outcomes that can be identified and associated with values
Individualsmaximize utilityand firmsmaximize profits
People act independently on the basis offull and relevant information
How do you explain the law of supply and demand?
Low supply and high demand increase price
High supply and low demand decrease price
What is a cost curve?
A cost curve is a graph of the costs of production as a function of total quantity produced.
What is a revenue curve?
A curve that graphically represents the relation between the marginal revenue received by a firm for selling its output and the quantity of output sold. A firm maximizes profit by producing the quantity of output found at the intersection of the marginal revenue curve and marginal cost curve.
What is economy of scope?
Economies of scope appears when firms achieve savings as it increases the variety of goods and services it produces
- in other words:
Cost savings occur when a firm transfers capabilities and competencies developed in one of its business areas to another of its business areas
I.e. – reduction in total costs and hence average costs
Advantages of using economy of scale?
- Technical advantages: Better IT systems
- Commerce advantages: Better agreements towards other companies as you are able to buy large quantities of a good or need
- Administrative advantages: Specialization
- Financial advantages: More attractive bank loans
Disadvantages of using economy of scale? (Diseconomies of scale)
- Technical disadvantages: too complicated IT systems
- Managerial disadvantages: lack of motivation, too high up the latter of the firm/company
- Administrative disadvantages: bad communication and coordination, because of how far up the latter of the company can go.
- Financial disadvantages: in bad times, big loans might be fatal to the existence of the firm/company
Disadvantages of using economy of scale? (Diseconomies of scale)
- Technical disadvantages: too complicated IT systems
- Managerial disadvantages: lack of motivation, too high up the latter of the firm/company
- Administrative disadvantages: bad communication and coordination, because of how far up the latter of the company can go.
- Financial disadvantages: in bad times, big loans might be fatal to the existence of the firm/company
What are the difference between economy of scale and scope?
Scale:
One product and additional inputs give a rise in production
Scope:
Multiple products and use of same resource for multiple purposes
What is a resource based view?
A firm is made up of a bundle of resources:
- Assets
- Capabilities
- Organizational processes
- Firm attributes
- Information
- Knowledge, etc.
The resources are controlled by a firm and may be optimized to improve its efficiency and effectiveness
What does Penrose argue?
- A firm can grow through release of excess managerial resources
- Resources may become in excess through routinization
What are the differences between Penrose and Neoclassical theory?
Neoclassical theory of the firm argues:
- Firm size is limited by the market and the optimal size of production is determined where increasing marginal costs equals marginal revenue
- Hence, where profit is maximized
Penrose argues:
- The growth of the firm is determined by the degree to which the firm can release unused managerial services
-There is no optimal size of the firm
