Lecture 7 - Cost-Ind Conc-PC-Monop-PD.pptx

Lecture 7 - Cost-Ind Conc-PC-Monop-PD.pptx - LECTURE 7...

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LECTURE 7 (3/1/16) Managerial Economics – Dr. Rishe PMBA – Wash U (Spring 2016) 1
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OUTLINE Costs (chapter 8) Various aspects of SR and LR costs Importance of MC, AVC, ATC Economies and Diseconomies of Scale (Long Run) Discuss the mirror-image relationship between production and costs. And do some problem solving associated with production and costs Perfect Competition (chapter 9) and Monopolies (Chapter 11) Price Discrimination 2
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RELATIONSHIP BETWEEN PRODUCTION AND COST We will see throughout our discussions in this unit that there is a MIRROR-IMAGE relationship between production and cost For example: When MP of labor rises, this means workers at the margin are becoming more productive Hence, the MC of the output they produce will FALL When MP of labor falls, this means workers at the margin are becoming less productive Hence, the MC of the output they produce will RISE. Walmart (App 8.1 BZ…pg 188) In the study cited, Walmart was responsible for large increases in productivity per labor hour Higher MP and AP imply lower AC and MC at each level of production Which have been partly passed onto consumers in lower prices (and boosting Consumer surplus) Improvements came from Connecting delivery trucks through radios and satellites Among the first to use computers to track store sales and inventory, and share with suppliers Collaborative planning, forecasting, and replenishment reduces inventory costs for Walmart and suppliers 3
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PRODUCTION/COST IN HOTEL INDUSTRY Topic Production and costs; profit maximization and the firm; monopolistic competition Key Words hotels, sheets (from USA Today…2005) News Story Hotel chains are beginning to act environmentally responsible: They're not changing sheets as often. It's also a good business decision, as their costs fall as a result. But some travelers aren't happy with the trend: They want fresh sheets every night. A USA Today poll indicated that many hotel chains (14 out of 25 surveyed) don't change the sheets every night, but rather every third night or so for those clients who stay. Of those hotels who don't, though, all said that they would change the sheets if a client requested it. Hotels argue that changing sheets less often is not only a good business decision, it also makes little to no difference to most of their customers, since they don't change their sheets at home every night, so there's no reason to expect the sheets to be changed every night at a hotel. Maybe for those customers who want it, hotels can stock up on Febreze. 4
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THE COMPUTER AGE DOESN'T ELIMINATE PAPER, IT JUST SHRINKS THE SIZE OF PAPER COMPANIES The computer age is here, but rather than creating a paperless society, it has created a "less-paper" society.
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