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Understanding Market Demand and Supply Dynamics: Teamwork and Organization in Firms

Explore the interplay of market demand and supply, focusing on teamwork dynamics in a grocery cooperative and the impact on earnings. Learn about the role of monitoring in reducing shirking behavior and how reorganizing firms can lead to increased productivity and earnings.

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Understanding Market Demand and Supply Dynamics: Teamwork and Organization in Firms

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  1. ECON 1 Week 6.1 Chapter 13

  2. Market: Demand & Supply $ P x Demand $ 10 $ 9 $ 8 $ 7 $ 6 $ 5 $ 4 $ 3 $ 2 $ 1 Supply At the equilibrium Price, the Dx = Sx Pe Sx Dx Qtyx /T 1 2 3 4 5 6 7 8 9 10 11 12 Qe

  3. Focus on Supply $Px Supply Qtyx/T

  4. Supply is based on Marginal Cost $Px Supply Height =Marginal Cost Qtyx/T

  5. Teamwork • 10 people run a grocery cooperative • Share equally, jobs & profits • Average daily earnings $ 2000 / 10 = $ 200 • Earnings vary from day to day…

  6. Teamwork  Shirking • When earnings are shared among the team there is a tendency for shirking • Shirking Decline in earnings • Solutions ?

  7. Shirking  Monitoring • Hire a monitor to reduce shirking • Earnings go back up to $ 2000 / 11 = $ 182 • Problem: the monitor shirks • Solutions?

  8. Reorganize Firm • Employees get fixed wages day to day • Predictability is desirable Owner begins to specialize work by worker • Increased output and earnings • Wages differ by difficulty of task • Owner becomes the monitor • Owner gets profits after wages (If any)

  9. The Organization of Firms • Teamwork and specialization • Teamwork  shirking • Shirking  monitoring • Profits monitor the owners

  10. Alternative Rates of Production

  11. Marginal Product • At first: Teamwork and specialization  Increasing Marginal product as you add workers • Law of Diminishing Returns: As you add more of one input to a fixed amount of other inputs, Marginal product declines.

  12. Marginal Product Marg. Product Workers

  13. Marginal Cost of Production

  14. Marginal Cost $ Marginal Cost Qtys/Day

  15. Marginal Cost $ COST Marginal Cost Quantity of Output / Time period

  16. Average Cost of Production

  17. Average Cost $ Cost Qtys/Day

  18. Average Total Cost $ COST Average Total Cost Quantity of Output

  19. Average Total Cost & Marginal Cost $ COST Marginal Cost Average Total Cost Quantity of Output / Time

  20. Economies of Scale $ COST Average Total Cost Minimum ATC Dis-Economies of Scale Economies of Scale Quantity of Output/Time

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