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MBA 710 Applied Economic Analysis. Instructor : Bernard Malamud Office: BEH 502 Phone (702) 895 –3294 Fax: 895 – 1354 Email: malamud@ccmail.nevada.edu Website: www.unlv.edu/faculty/bmalamud Office hours: TR 11:30 – 12:30; 2:30 – 3:30 pm And by appointment.

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mba 710 applied economic analysis
MBA 710Applied Economic Analysis
  • Instructor: Bernard Malamud
    • Office: BEH 502

Phone (702) 895 –3294

Fax: 895 – 1354

          • Email: malamud@ccmail.nevada.edu

Website: www.unlv.edu/faculty/bmalamud

Office hours: TR 11:30 – 12:30; 2:30 – 3:30 pm

And by appointment

economics for strategic thinking
Economics for Strategic Thinking

You and your adversaries/partners

  • Your customers, suppliers, competitors, colleagues
  • Anticipate what they’ll do
  • Figure they’re as smart as you are
tools of economic analysis
Tools of economic analysis
  • Build simple, tractable models of complex situations

… Capture the essence

  • Assume purposeful behavior
    • Maximize profit … subject to constraints
  • Anticipate outcomes … what happens when everyone does their best
  • Evaluate outcomes
  • Seek improvements

The Mantra:

Marginal Benefits = Marginal Costs

demand and supply
Buyer Demand

Price

Income

Tastes

Other Prices

Substitutes

Complements

Expectations

Seller Supply

Price

Costs

Input prices

Wages, rents, ...

Supplies

Technology

Expectations

Demand and Supply
gm s story
GM’s Story
  • Gotta give rebates to old-truck owners = X
  • Coupon can be resold to others (for Q)
    • They get smaller rebate = x
    • There’s also a brokerage fee = k
  • Demand: 2.0 million trucks @ $20K
      • 0.6 million old-truck owners
      • 1.4 million other buyers

Price elasticity of demand = 4

gm s story continued
GM’s Story, continued
  • Price elasticity of demand = 4
    • For each 1% increase in price above $20K there’s a 4% decrease in quantity demanded below 2.0 million
    • If price rises by 1% to $20.2K, sales drop by 80,000 (4% of 2 million) to 1.92 million
  • This is highly elastic demand
  • ↑P Q↓↓ … Total Revenue = TR ↓
  • ↓P Q↑↑ … Total Revenue = TR ↑
gm s story continued1
GM’s Story, continued
  • Cost of truck to GM = $15K

Marginal Cost = $15K … doesn’t change

  • GM wants to maximize profit

Profit = Total Revenue – Total Cost

It should produce to point where

MARGINAL REVENUE = MARGINAL COST

Note: If GM wants to sell another truck, it has to drop its price a bit on all those it’s already selling

MR < Price

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