Explain the Major Factors at Play When Deciding What Form

question 40

Essay

Explain the major factors at play when deciding what form the business organization must take.

Understand the concept of marginal social benefit (MSB) and how it is calculated for different members in a society.

Recognize the characteristics and implications of nonexcludable goods, including the free-rider problem.

Determine the socially optimal level of provision for public goods and common resources.

Identify and differentiate between types of goods based on their excludability and rivalry in consumption.

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Definitions:

Principal Agent Problem

A dilemma in economics and organizational theory where one party (the agent) is supposed to act in the best interest of another party (the principal) but might act in their own interest instead.

Shirking

Working at less than the expected rate of productivity, which reduces output. Shirking is more likely when workers are not monitored, so that the cost of lower output falls on others.

Corporate Business Structure

Corporate business structure refers to the legal organization of a company, often characterized by the issuance of shares, a board of directors, and liability protection for its shareholders.

Productive Contribution

The input or service provided by a factor of production towards the making of goods and services.