MBA Economics notes
Many college microeconomics courses include the following exercise. The teacher offers the students an imaginary trip to Hawaii, and asks them to write down on notecards how much they are willing to pay for the trip. The teacher takes the notecards and graphs the bids. Here’s how the graph might look: […]
Understanding Price and Quantity in the Marketplace Almost every holiday season, the most popular “must have” toy is in short supply. And there’s usually a strong secondary market for the item – with parents paying well over the retail price just to make their children happy. Then, in January, stores reduce the prices of their
Knowledge of the geometric relations among totals, marginals, and averages can prove useful in managerial decision making. Figure presents a graph of the profit-to-output relation given in Table Each point on the curve represents a combination of output and total profit, as do columns 1 and 2 of Table The marginal and average profit figures from Table have been
Total, average, and marginal relations are very useful in optimization analysis. Whereas the definitions of totals and averages are well known, the meaning of marginals needs further TABLE 1 Relation Between Total Revenue and Output; Total Revenue = $1.50 Output Total Revenue
Tables are the simplest and most direct form for presenting economic data. When these data are displayed electronically in the format of an accounting income statement or balance sheet, the tables are referred to as spreadsheets. When the underlying relation between economic data is simple, tables and spreadsheets may be sufficient for analytical purposes. In such instances, a simple
The easiest way to examine basic economic concepts is to consider the functional relations incorporated in the basic valuation model. Consider the relation between output, Q, and total revenue, TR. Using functional notation, total revenue is (2.2) TR = f(Q) Equation 2.2 is read, “Total revenue is a function of output.” The value of the dependent variable (total
Case Study What does a perfect business look like? For Warren Buffett and his partner Charlie Munger, vice-chairman of Berkshire Hathaway, Inc., it looks a lot like Coca-Cola. To see why, imagine going back in time to 1885, to Atlanta, Georgia, and trying to invent from scratch a nonalcoholic beverage that would make you, your family, and all
What does all this mean with respect to the value maximization theory of the firm? Is the model adequate for examining issues of social responsibility and for developing rules that reflect the role of business in society? As seen in Figure , firms are primarily economic entities and can be expected to analyze social responsibility from within the
Although the process of market-determined production and allocation of goods and services is highly efficient, there are potential difficulties in an unconstrained market economy. Society has developed a variety of methods for alleviating these problems through the political system. One possible difficulty with an unconstrained market economy is that certain groups could gain excessive economic power. To illustrate, the
Firms exist by public consent to serve social needs. If social welfare could be measured, business firms might be expected to operate in a manner that would maximize some index of social well being. Maximization of social welfare requires answering the following important questions: What combination of goods and services (including negative by-products, such as pollution) should be produced?
