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In economic models, when actions such as setting prices or hiring workers are attributed to 'the firm,' these decisions are in practice made by the firm's owners or by managers who have been delegated this authority.

Decision-Making Agents within a Firm

Read the following scenario. Identify which group within the company is responsible for making this decision and explain how their primary objective conflicts with the objectives of another group within the firm.

Analyzing a Corporate Decision

A small, family-owned bakery and a large, publicly-traded corporation both decide to increase the wages for their employees. Which statement best distinguishes the decision-making process in these two types of firms?

An economic news report states, "In response to market competition, the company decided to invest in new automation technology." Explain why this statement is a simplification from an economic perspective. In your explanation, identify the specific types of individuals within the company who would likely be responsible for making such a strategic decision.

Identifying the Decision-Maker

When the owners of a large company delegate day-to-day decision-making authority to hired managers, the interests of these two groups may not always align. Analyze a potential conflict of interest that could arise between a firm's owners and its managers regarding a major business decision. In your analysis, explain the likely objective of each group and why their perspectives might differ.

Owner vs. Manager Objectives

While economic models often refer to 'the firm' as a single decision-maker, in practice, authority is distributed. Match each business decision to the agent or group most likely responsible for making it in a typical large corporation.

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