The Behavior of the Soviet-Type Firm
The manager is the main link between the firm and the planning bureaucracy.
The firm’s production plan specifies its output quota and the quantities of most variable inputs to be received by the firm, and it designates the suppliers of those inputs.
The firm has a financial plan which is the monetary equivalent of its production plan. A bank supervises the use of budgeted funds, extends short-term credit when approved expenditures exceed planned receipts, and oversees the firm’s operations.
The firm’s performance is evaluated on the basis of the achievement of the gross output target and the realization of the average planned costs and profits.
The firm hires labor services in the market, but the production plan determines the size of the firm’s wage fund. Also, the relative wages for different skills are set administratively.
The government allocates new capital goods to enterprises and transfers existing ones from one enterprise to another. The firm pays no rent on capital goods in its possession; however, it cannot sell them, rent them, or change their quality. Thus, the firm bears no cost for having “too much” capital.
KeywordsProduction Function Capital Good Production Quota Monetary Equivalent Opportunity Choice
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