Reviewing The Tragical History Of Doctor Faustus English Literature Essay

Reviewing The Tragical History Of Doctor Faustus English Literature Essay My third chapter proposes a threefold analysis of the major characters in The Tragical History of Doctor Faustus and The Master and Margarita. First, by comparing Faustus and Margarita, I show how their individual features as well as their relationships with the other characters are marked by elements of feminism, psychoanalysis, Renaissance humanism, affective geography, and role-play. Then, I put forth a parallel between Woland and Mephostophilis meant to reveal that-in both literary works-the devils embody a necessary evil that actually reinforces divinity. Last but not least, an insight into some of the most significant supernatural episodes of these books shall demonstrate that magical realism and Bakhtins theory of carnival laughter offer readers the Faustian myth with a twist. Margarita and Doctor Faustus Starting from the premise that man is created as Gods reflection, in a twofold embodiment of the masculine and the feminine principle (Sergei Bulgakov 150), one might easily assume that both The Tragical History of Doctor Faustus and The Master and Margarita underline the harmonious union between male and female elements-hence Bulgakovs title of his novel and also its dual structure; yet instead, nothing could be farther from the actual ponder of masculine over feminine aspects in both books. In this sense, feminist critics and theoreticians base their approach to either of these two literary works on issues of gender-segregated societies, appellatives, transgender identity, androgyny, and linguistically codified male discourses. Both Marlowes England and Bulgakovs Stalinist Russia are worlds segregated in terms of gender. Eve Kosofsky Sedgwick explains: male friendship, mentorship, admiring identification, bureaucratic subordination, and heterosexual rivalry (quoted in Chedgzoy 247) are all forms of homosocial connections that pervade both Marlowes play and Bulgakovs novel. Thus, Faustus aspirations are foreshadowed at the beginning of the play when he fantasizes about exotic sites, colonial exploitation (attributed to men exclusively), and violent ambitions: Ay, these are those that Faustus most desires. / O, what a world of profit and delight, / Of power, of honour, of omnipotence (Marlowe 52). Faustus deems knowledge the way to gain power. His is not a singular view; rather, it represents the exponent of Marlowes epoch according to historians: during those times, this segregation extends even to theatres where actresses are not admitted and universities where men alone are granted access. Bulgakovs work o f fiction account for a role reversal, although the circumstances are somewhat similar. Margarita-the female Faustus of the twentieth century and therefore the one who assumes a anti-hegemonic role-is swept off her feet by the Master, a God-like figure who is not satisfied with writing about Yeshua (hence the identification with the latter that confers him divine authority) but carries his artistic mission further, which acquires metaphysical connotations. The Master remains unnamed and thus represents a universal symbol of Bulgakovs literary times. He is the exponent of one of the major Moscow literary associations, called Massolit (Bulgakov 11) that rarely if ever includes women writers among its members. Even if this is the case, women are belittled twice: first rejected as writers or second fiercely censored by the state. Feminists seek to rebel against such a misogynistic structure of masculinity; they find the key figures to do that in exactly the same female characters who are initially submissive and oppressed. Both Margarita and Helen of Troy disrupt the authoritative discourse of masculinity. On the one hand, the second part of Bulgakovs novel casts away the Master and brings into focus the beautiful Margarita: She was beautiful and intelligent. () many women would have given anything to exchange their lives for the life of Margarita Nikolaevna (Bulgakov 166). She is now the active protagonist, whereas the Master is the passive one. She is willing to sacrifice body and soul in the name of love, acknowledging her role entirely. On the other hand, Marlowes tragedy depicts Helen as the demolisher of masculine power; her name Helen may be read as made up of the core Hel (referring to hell and destruction) and the particle -en. That is why Helens image is associated with the downfall of Troy but also of Faustus and Wittenberg here. Furthermore, an equally significant element that brings about the subversion of masculine authority is love. Both Faustus and the Master single-mindedly surrender to their mistresses, although this aspect is more obvious at Marlowe. In Bulgakovs book, the Master owes Margarita his salvation and recuperation, whereas in Marlowes tragedy, the play of significances has a greater depth. Doctor Faustus and Helen engage in an androgynous role-play: he plays Semele and Paris: I will be Paris, and for love of thee / Instead of Troy shall Wittenberg be sackd, / () When he appeard to hapless Semele (Marlowe 106), while Helen assumes the prototype of feminine beauty but also the role of Jupiter: Brighter art thou than flaming Jupiter (106). A few lines afterwards, by being associated with Eve, Faustus becomes aware of his sin but he is also left with an undermined masculinity: that tempted Eve may be saved, but not Faustus (108). In The Tragical History of Doctor Faustus and The Master and Margarita alike, even episodic characters or those of lesser importance see women only as a medium of power, as objects rather than agents. Hence Valdes ironic observation: Sometimes like women or unwedded maids, / Shadowing more beauty in their airy brows / Than in the white breasts of the queen of love (Marlowe 54) or Robins declamatory fantasy: Ay, there be of us here that have waded as deep into / matters as other men (73). Mephostophilis himself turns the concept of marriage into an antisocial act because he offers Faustus a devil disguised as woman instead of a wife. Bulgakovs text describes the meeting between Azazello and Margarita on which occasion the former reckons that women are superficial beings: saying ironically: Difficult folk, these women! (174). Another character, Hella-Wolands maidservant-is analogised to Helen of Troy through her name (note the particle Hell): she represents the feminine side of Hell. Twentieth century feminists fight against such patriarchal empowerment. This is the case of Helene Cixous who upholds the idea that gender relations are inscribed in the language we use. Consequently, Cixous turns the invisibility of women back against men, who become the other of the other and hence are cancelled out (Hedges 106). Following in the same line, Luce Irigaray argues that man obliterate differences between them and women as a result of their belief that women represent their reflected opposites; therefore, womens otherness is denied (Hedges 105-6). Additionally, the two protagonists of these literary works are linked by features of humanism. Doctor Faustus definitely embodies the exponent of the perfectible man of the Renaissance whose intellectual curiosity, aspiration for power, and nationalism are expressed rhetorically in the first person singular: Ill have them (à ¢Ã¢â€š ¬Ã‚ ¦) / Ill levy (à ¢Ã¢â€š ¬Ã‚ ¦) / Ill make (à ¢Ã¢â€š ¬Ã‚ ¦) (Marlowe 53). In this respect, Faustus is an overreacher according to Harry Levin as he reaches out to the unconscious, to supernatural forces that might help him remedy the intellectual bases of his age which he perceives as faulty (quoted in Mitchell 55). Although he aims to gain fame through his powers and he aspires to be more than a man, he is permanently haunted by an uneasy consciousness; hence the opposition between the Good and the Bad Angels but also the Seven Deadly Sins that reveal the scholars inner flaws. Margarita too is a representative of twentieth century humanism. She does not seek to gain power through knowledge but through love. Similarly, her being an overreacher is evident in the desire to explore new environments and her acceptance to obey occult forces. Marlowes Faustus and Bulgakovs Margarita are both folk protagonists since they are considered dissidents of their times, in spite the fact that their endeavours target very distinct goals. Paul de Man describes this type of character as the one whose path is strewn with those parts of himself that he had to abandon in the process of his own becoming (398). Faustus symbolizes the opposition brought about by the protestant belief that every individual is responsible for his / her own salvation or damnation. Margarita denotes the opposition against the rigid moral and social rules dictated by the communist regime. The scholars unorthodox practices and his extended travels shed light on the ultimate results which he bargains for: knowledge, fame, and control over other cultures, whereas Margaritas is a more limited aim-she is not at all domineering (although she is appointed queen for a night) but looks for affective fulfillment. However, these central characters are brought together by the development of all their individual possibilities, so that, by being put to test in the world, they might penetrate, come to know, and dominate reality (Lukacs quoted in Hedges 92). Faustus and Margaritas personalities extend to more than their individual scope, they represent a literary reaction to the ardent issues of their times. Moreover, these protagonists are depicted as torn between their affective and their intellectual make-up all throughout the texts. Obviously, the combo of emotion and reason is much more stringent in Faustus case: the oscillation between enjoying life and attaining knowledge reveals that for the scholar, the body is more important than the soul, as he himself puts it: This word damnation terrifies not him (Marlowe 58). Nevertheless, Faustus existence stands not under the sign of eros, (like Margaritas does) but of thanatos (Hermand quoted in Hedges 94)-since his quest leads to death whereas Margaritas grants her access to atemporal bliss. Ultimately, the construction of Marlowes and Bulgakovs central characters is informed by the setting where they are portrayed. Garrett A. Sullivan, Jr. speaks about an affective geography (231)-for instance Faustus study or the Master and Margaritas rented apartment-that shapes the protagonists identity. He further explains that the notion of geography is defined as a conceptual structure through which social and spatial relations are simultaneously materialised and represented (Sullivan 236). In these two literary works, there exists a cyclic sequence of broadness and enclosure. We find Faustus alone in his study both at the beginning and in the end of the play, although he travels extensively during the twenty-four years of the pact, while Margarita swings between the remoteness of her Masters apartment-A completely private little apartment, plus a front hall with a sink in it, little windows just level with the paved walk leading from the gate (Bulgakov 109)-Moscows expansiveness, and the seclusion of their eternal refuge. Thus, the relationship space-identity acquires new dimensions; locations become part of the characters emotional make-up: The axis mundi passes through [Faustuss] Wittenberg study and the Muscovite abode; on it lie Heaven and Hell (Kott quoted in Sullivan 240). Overall, Marlowes play and Bulgakovs prose present two multidimensional characters who-if carefully analysed-are more similar than different in terms of questioning patriarchal discourses through feminist techniques, in terms of revealing humanistic features, and in terms of attaching emotional connotations to their setting or background. The Evil Suite The archetype of the dichotomy good-evil permeates human discourses as well as literary creations since the beginning of time. Evil has forever been opposed to and traditionally vanquished by good forces, regardless of the culture adopting this model. Nonetheless, The Tragical History of Doctor Faustus as well as The Master and Margarita put forth an innovative perspective: not only does evil stem from good, but it also reinforces divine laws and teaches moral lessons. Both Christopher Marlowe and Mikhail Bulgakov deal with metaphysical issues in their works, issues that question the relationship between Heaven and Hell and Gods intervention in humans lives at the same time. In this context, Wolands emergence in Moscow and Mephostophilis in Faustus study foreshadow the obvious religious themes whose manifold interpretations are disclosed in these two works. Wolands mission is to point to the moral collapse of the Stalinist 1930s Moscow through the use of satire and supernatural whereas Mephostophilis task is more limited in scope because it refers to a single individual, Doctor Faustus. However, both demons appear as God-sent messengers swinging between Heaven, earth, and Hell. In Marlowes tragedy but also in Bulgakovs novel, the forces of good and evil are not in competition but coexist on more or less equal terms (225) as Laura D. Weeks tells us in her article Hebraic Antecedents in The Master and Margarita: Woland and Company Revisited. The black magic professor, Woland seems inseparably united with God even from the very beginning of the novel, when the motto taken from Goethe exposes this timeless link: I am part of that power which eternally wills evil and eternally works good (Bulgakov 11). The same may be said about Mephostophilis who-when asked about his origins-replies: FAU. Was not that Lucifer an angel once? / MEPH. Yes, Faustus, and most dearly lovd of God. () FAU. And what are you that live with Lucifer? / MEPH. Unhappy spirits that fell with Lucifer (Marlowe 59). Thus, Woland appears as an intricate and profound character while Mephosto is less thoughtful and more servile. Additionally, having the status of Gods opposites, the two devils actually strengthen His goodness and prove once more that they are His envoys. In Bulgakovs novel, Woland claims to have been an incognito observer of Yeshuas trial; it is paradoxical how-by recounting this first installment to Berlioz and Ivan Homeless-Woland in fact reasserts Gods existence: Theres no need for any points of view, the strange professor replied, he simply existed, thats all' (Bulgakov 18). Likewise, Mephostophilis reconfirms the divine authority when he admits his origins and confesses the sin of having Conspird against our God with Lucifer (my emphasis, Marlowe 59). Moreover, both Woland and Mephostophilis have immense powers, yet they are aware these are limited in comparison to Gods. For instance, when Margarita asks that Frieda be forgiven, Satan admits: Each department must look after its own affairs. I dont deny our possibilities are rather great, () But there is simply no sense in doing what ought to be done by another as I just put it department (Bulgakov 216). Mephosto similarly gives away his limitations when he refuses to tell Faustus who has created the world: Now tell me who made the world. / MEPH. I will not (Marlowe 69) or during all the episodes when he urges the scholar to renew his bond for fear Faustus might be forgiven by God. However, in their attempt to attest Gods existence, both Marlowes and Bulgakovs demons actually want to reinstate theirs. Wolands and Mephostophilis is a peculiar status since they seem to embody both good and evil. On the occasion of the Great Ball when Woland is willing to grant Margarita a wish, the power of mercy surfaces: I am talking about mercy, Woland explained his words, (à ¢Ã¢â€š ¬Ã‚ ¦) It sometimes creeps, quite unexpectedly and perfidiously, through the narrowest cracks. And so I am talking about rags' (Bulgakov 216). Mephostophilis does not mention mercy but regret and despair when he contemplates his everlasting doom in Hell: Thinkst thou that I, who saw the face of God / And tasted the eternal joys of heaven, / Am not tormented with ten thousand hells / In being deprivd of everlasting bliss? (Marlowe 59) or when he advises the scholar: O Faustus, leave these frivolous demands, / Which strike a terror to my fainting soul (ibidem). Under these circumstances, there arise questions about the ambiguous, opposites-marked personalities of Woland and Mephosto; Radha Balasubramanian further explains: the two literary works complicate the matter further by concentrating on the nature of the Devil, raising questions as to who the Devil is, and how he came out being angelic. He is a wanderer, without a name and without a home? Does he also resemble God? Are they the same? Do devils exist as a contrast to God? Are they two sides of the same coin? (1995: 41) Therefore, besides the dominant feature of demonism, The Tragical History of Doctor Faustus and The Master and Margarita endow their devils characters with versatile attributes. The demons incorporate multiple valid truths (Emerson 179), acting as coordinators and bridging the different plans of the two books. In so doing, Woland and Mephosto bring about a multiplicity of perspectives and remind the reader of Mikhail Bakhtins heteroglossia, although Marlowes devil is less distant than Bulgakovs: Except when he is the mouthpiece for an installment of Christs Passion, Woland is a taciturn man. This is appropriate. He shows rather than tells (Emerson 179). Another equally significant aspect is related to the parallel that the two authors draw between devils and religion. Hence, the satire of the Stalinist Moscows society is acquired through a review of the Yershalaim narrative. The same may be averred about a satire of Catholicism at Marlowe through a post-Reformation approach. Whereas the parallel between Wolands visit in Moscow and Yeshuas Passions in Yershalaim indicates time condensation-Moscows literary time became a mythical time that can be structurally correlated with the mythical dimension in the Yershalaim chapters (Balasubramanian, 2001: 90)-there is no such analogy or time contraction in Marlowes tragedy. Instead, the dramaturge describes the meeting between Faustus, Mephosto, and the Pope as the only occasion when the Pope is punished by the devil. In this way, Catholicism is downplayed as the Pope is mocked for failing to exorcize the troublesome ghost (Marlowe 83). Here, religious dissidence is also backed up by newly em ergent ideas of predestination and original sin as advocated by the Elizabethan church. By opposition, the sole religious dispute occurs in the incipit of Bulgakovs novel between Ivan Homeless, Berlioz, and Woland. Furthermore, there are additional thought-provoking implications that seem to pervade only Bulgakovs novel but not Marlowes play. For instance, certain scholars question the source and the narrator of the novel at the same time, attributing these alternatively to Bulgakov, the Master, the Devil, or God (Balasubramanian, 1995: 44). It is evident that endowing Woland with the premise of authorship is an idea reminiscent of Bulgakov himself who has originally planned his novel as a Gospel According to the Devil' (Emerson 178). In this respect, Christs story is defamiliarized by transposing narrative points of view from the apostles to the devil (Balasubramanian, 1995: 44)-the habitual Christian perception is disrupted and the gospel acquires novel undertones. In general, good and evil are the inseparable components of the human nature differentiated only by mans free will. There is no preeminence of evil over good, although there can be no good without evil: Kindly consider the question: what would your good do if evil did not exist, and what would the earth look like if shadows disappeared from it? (Bulgakov 274). By this account, both Woland and Mephostophilis appear as the most reliable source of knowledge in these two literary works but equally as troubled allies of God. Supernatural Encounters At the beginning of the nineteenth century, E. T. A. Hoffmann-a leading representative of German Romanticism-uses the fantasy genre with macabre undertones in combination with realism. A century later, the theoretician Mikhail Bakhtin defines his work as a Menippean satire, fundamentally satirical or mocking in nature and seeking to ridicule different intellectual attitudes and philosophical postures (Cuddon 504). The two literary works herein under scrutiny draw on the category of supernatural and on comedy to give the Faustian myth a twist, although humour serves distinct purposes in The Tragical History of Doctor Faustus and The Master and Margarita. The use of humour and farce in the two books is treated differently by critics. On the one hand, in Marlowes play, the comic scenes have not received that much critical consideration over the years. One reason for this aspect might be the fact that there is still ardent debate nowadays over the authorship of these comic scenes: There is almost unanimous agreement that the scenes of clownage (à ¢Ã¢â€š ¬Ã‚ ¦) and the comic scenes at the papal, imperial, and ducal courts (Jump 22) are not Marlowes but someone elses-hence the variation in length and style between the A-version (1604) and the B-version of the text (1616). Regardless of their origin, humourous scenes do permeate Marlowes play. On the other hand, Bulgakovs comedy episodes have been the focus of much more critical interpretation due to the conviction that, in this case, Bulgakov himself is the author of these scenes. Bulgakovs fiction does not employ humour and pranks only for the sake of comic relief but also to underscore a deeper connotation: the Stalinist Moscows small-mindedness, gluttony, and moral degradation. Certain commentators such as Marie-Hà ©là ¨ne Besnault in Belief and Spectacle at Early Performances of Doctor Faustus (2009) separate humourous episodes into low-comedy and clowning scenes (19). The former category occur in Vatican and at Charles-the German Emperors-court, have Faustus as protagonist, depict people pertaining to the social elite, and are further divided into sub-scenes with a larger number of characters (Besnault 19-20): dukes, attendants, cardinals, and others. The most relevant instances of low-comedy scenes centre on the moments when Faustus and Mephosto steal the Popes food or beat up the friars: POPE. How now! Who snatchd the meat from me? / POPE. My wine gone too? Ye lubbers, look about (Marlowe 82). By opposition, the protagonists of the clowning scenes are Robin, Dick, the horse-courser and their suite (in fact, all of them embodying archetypes of clowns), although the main topic of discussion remains Faustus. Besides, these episodes have a less intricate course of events as well as an equally uncomplicated spatial and temporal frame. Examples that best illustrate this case present Faustus tricking the horse-courser or Robin and Dick being changed to animals: For apish deeds transformed to an ape. / MEPH. And so thou shalt: be thou transformed to a dog, and carry him upon thy back. Away, be gone! (Marlowe 85). Similarly to Marlowes low-comedy that parallels the major events of the play, Bulgakovs novel contains buffoonery scenes meant to counterpoint the main plot. For instance, Natashas metamorphosis into a witch parallels Margaritas: Completely naked, her dishevelled hair flying in the air, she flew astride a fat hog, who was clutching a briefcase in his front hoofs, while his hind hoofs desperately threshed the air (Bulgakov 185). Then, there is also the correspondence between Behemoths noble-like manners and Wolands aristocratic personality: There was now a white bow-tie on the cats neck, and a pair of ladies mother-of-pearl opera glasses hung from a strap on his neck. Whats more, the cats whiskers were gilded (Bulgakov 195). Both Marlowes tragedy and Bulgakovs narrative dwell on the connection between belief and disbelief when presenting supernatural occurrences. T. S. Coleridges willing suspension of disbelief (Biographia Literaria, 1817) justifies the emergence of supernatural, seemingly inexplicable actions in a literary work. Thus, despite being taken aback by multiple extraordinary, uncanny events, the readers of these two books are willing to believe and acknowledge such scenes as literary conventions. Berliozs severed head as predicted by Woland, Behemoth traveling by tram with a paid ticket, Faustus invocation of Alexander the Great, or Wagners summoning devils are all examples that illustrate the abovementioned hypothesis. Unlike Bulgakovs fiction however, Marlowes play draws on an extra element which reinforces the suspension of disbelief (ibidem), namely the fact that the comic scenes seem open to further editing, alterations, or adjustments according to the taste of the audience who watches t he performance of the play onstage. Additionally, magical realism informs The Tragical History of Doctor Faustus and The Master and Margarita alike. In The Penguin Dictionary of Literary Terms and Literary Theory (1998), J. A. Cuddon enumerates some of the key aspects which characterize this literary trend: Some of the characteristic features of this kind of fiction are the mingling and juxtaposition of the realistic and the fantastic or bizarre, skillful time shifts, convoluted and even labyrinthine narratives and plots, miscellaneous use of dreams, myths and fairy stories, expressionistic and even surrealistic description, arcane erudition, the element of surprise or abrupt shock, the horrific and the inexplicable. (488) In the two literary works analysed here magical realism establishes a link between the books reality and a mythological, distant past. In this way, supernatural episodes are bordered by easily recognisable locations and characters that offer readers a dose of certainty. Behemoth alludes to Charles Perraults story The Booted Cat (1697) when he claims: A cat is not supposed to wear trousers, Messire, the cat replied with great dignity. Youre not going to tell me to wear boots, too, are you?' (Bulgakov 195). Koroviev himself hints at various titles as he walks pass the Griboedov House: and a sweet awe creeps into ones heart at the thought that in this house there is now ripening the future author of a Don Quixote or a Faust, or, devil take me, a Dead Souls. Eh?' (268). Furthermore, humour at Marlowe and Bulgakov is not exclusively employed for purposes of comic relief during moments charged with narrative or dramatic tension. Rather, it also mocks, it satirizes individual and social flaws, being marked by ironic undertones. In Bulgakovs novel, the fascination with the folkloric, the demonic and the grotesque (Jones 27) actually indicates a satire of the Stalinist society that has discarded individual reliability and awareness. In this situation, the mockery seems to be directed especially towards people of the artistic sphere: writers, critics, or theatre employees. By comparison, in Marlowes dramatic work readers come across entertaining episodes fraught by sinister underpinnings-for example, Robin and Dicks metamorphoses in animals parody the degradation of the human nature, its reduction to primeval instincts. Moreover, Mikhail Bakhtins theory of carnival laughter may be applied to both Marlowes play and Bulgakovs narrative. In the article entitled Carnival and Comedy: On Bakhtins Misreading of Boccaccio, Adrian Stevens explains that For Bakhtin, carnival is a manifestation of folk laughter; it embodies a folk based culture defined by its antipathy to the official and hierarchical structures of everyday, noncarnival life (1). Bakhtin believes that carnivals influence the various types of comic works in literature by deferring daily constraints and thus liberating humans and also by bringing opposites together. In Bulgakovs and Marlowes books comic scenes unite masters and servants (Faustus and Mephosto-Wagner and his suite; Margarita-Natasha; Woland-his retinue), the righteous and the sinful (Yeshua-Woland; Pope-Mephosto; Good Angel-Bad Angel) but equally the wise and the fool (Faustus-Benvolio; the Master-Ivan Homeless). On the whole, the third chapter of my paper has shown how the personalities of the protagonists in The Tragical History of Doctor Faustus and The Master and Margarita are shaped by elements of feminism, humanism, and affective geography. Afterwards, I have compared the evil entourages in these two works only to reveal that Woland and Mephostophilis are an integrant part of goodness. Finally, by contrasting the supernatural and the comic episodes in Marlowes play and in Bulgakovs novel, I have exposed the fact that humour may acquire deeper implications besides the visible comic relief at the surface.

Samenvatting Managerial Economics

chapter 1. introduction to managerial economics 1. what is managerial economics? Managerial economics = the science of directing scarce resources to manage effectively > each needs to understand how they can influence the demand through price and advertising, what is the best organizational architecture and how to compete Differences between ‘new’ and ‘old’ economy * Network effects in demand = the benefit provided to any user depends on the total number of other users * Scalability = the degree to which the scale and scope of business can be increased without a corresponding increase in costs Public good = one person’s consumption does not reduce the quantity available to others Branches Managerial economics: * Competitive markets * Market power * Imperfect markets 2. preliminaries scope (omvang) Microeconomics = the study of individual economic behavior where resources are costly > how consumers respond to changes in prices and income, †¦ Manag erial economics more limited scope = it is the application of microeconomics to managerial issues Macroeconomics = focuses on aggregate economic variables considers economic aggregates directly rather than as the aggregation of individual consumers and businesses methodology Fundamental premise = individuals share common motivations that lead them to behave systematically in making economic choices > a person who faces the same choices at two different times will behave in the same way at both times > it is systematic so it can be studied Economic model = a concise description of behavior and outcomes = abstraction Models are constructed by inductive reasoning > afterwards, the model should be tested arginal vis-a-vis average Marginal value = the change in the variable associated with a unit increase in a driver Average value = total value of the variable divided by the total quantity of a driver > relation between the marginal and average values depends on whether the average value is decreasing, constant or increasing with respect to the driver Stocks and flows Stock = quantity at a specific point in time Flow = the change in a stock over some period of time > measured in units per time period other things equal = an approach to simplify the problem by analyzing each change separately, holding other things equal . timing Two types of models * Static models = describe behavior at a single point of time, disregard differences in the sequences of actions and payments > model of competitive markets, analysis of organizational architecture * Dynamic models = focus on the timing and sequence of actions and payments = receipts and expenditures often occur at different times discounting Investments = using resources at some times in order to receive benefits at other times > discount future values to that they can be compared with the present Net present value the sum of the discounted values of a series of inflows and outflows over time = represents the current val uation of a flow of dollars time Internal rate of return = alternative for the net present value without using the discount rate 4. organization organizational boundaries Vertical boundaries = delineates activities closer to or further from the end user Horizontal boundaries = defined by its scale and scope of operations * Scale = rate of production or delivery of a good or service * Scope = refers to the range of different items produced or delivered individual behavior businesses are managed by individuals and their interests may diverge from those of the organization > managers are subject to bounded rationality Standard assumption = people make decisions rationally = individuals choose the alternative that gives them the greatest difference between value and cost > their behavior will follow some predictable patterns based on what they judge to be in their best interest People do not always behave rationally > reason: bounded rationality = people have limited cognitive bilities and cannot fully exercise self-control = people adopt simplified rules for decision-making * Separate accounting for different categories of benefits and cost * Lack self-control = addictive behavior and difficulty postponing immediate gratification for longer-term benefits. * More sensitive to loss than to gain = risk averse * Decisions may depend on how choices are framed Two implications: * Individuals will be relatively sluggish in responding to changes in business and economic conditions * Role for managerial economics is larger . markets Market = consists of the buyers and sellers that communicate with one another for voluntary exchange > not limited to any physical structure of particular location * Markets for consumer products = buyers are households and sellers are businesses * Markets for industrial products = buyers and sellers are businesses * Markets for human resources = buyers are businesses and sellers are households Industry = businesses engaged in the production o f delivery of the same or similar items competitive markets = markets with many buyers and many sellers Buyers provide the demand and sellers provide the supply demand-supply model = describes the systematic effect of changes in prices and other economic variables on buyers and sellers >describes the interaction of these choices market power Key variables: * Prices * Scale of operations * Input mix = determined by market forces Market power = ability of a buyer or seller to influence market conditions A business with market power must determine its horizontal boundaries = depends on how its costs vary with the scale and scope of operations Four key tools in managing demand: 1. Price 2. Advertising 3.Policy toward competitors 4. R&D expenditure Imperfect markets Imperfect Market = when one party directly conveys a benefit or cost to others and where one party has better information than others > managers need to resolve the imperfection 6. global integration Price in one local market will be independent of prices in other local markets > some markets are global because the costs of communication and trade are relatively low = the prince in one place will move together with the prices elsewhere > whether a market is local or global, same managerial economics principles ommunications costs and trade = with developments in technology and deregulation Transport: * air transport liberalization * containerization of surface transport. Telecommunications: * de-regulation. * scale economies in bandwidth. Growth of cross-border trade and investment: * falling trade barriers. * falling financial barriers. * falling communications cost managers have to pay increasing attention to markets in other places outsoarcing = the purchase of services or supplies from external sources > external sources could be within the same country or foreign E-commerce Limitations: * Payments system Trade barriers * Shipment costs part 1: competitive markets chapter 2. demand 2. individual dem and Individual demand curve = a graph that shows the quantity that the buyer will purchase at every possible price construction = other things equal, how many would you buy at a price of – – ? > important to keep other things equal there the decision may depend on other factors * Vertical axis is the price * Horizontal axis is the quantity Two views: * For every possible price, demand curve shows the quantity demanded * For each unit of item, demand curve shows the maximum price that the buyer is willing to pay slope at a lower price, buyers are willing to buy a larger quantity Marginal benefit = the benefit provided by an additional unit of the item Diminishing marginal benefit = each additional unit of consumption or usage provides less benefit than the preceding unit > the price that an individual is willing to pay will decrease with the quantity purchased preferences Two implications: * The demand curve will change with changes in the consumer’s preferences * Different consumers may have different preferences and hence different demand curves 3. emand and income Demand curve does not explicitly display the effect of changes in income and other factors that affect demand income changes = effect of a change in income on the demand curve is very different from that of a change in price > if income drops = demand curve shifts to the left * Change in price = movement along the demand curve * Change in income or any factor other than the price = shift in the entire demand curve normal vis-a-vis inferior products Normal product = positively related to changes in the buyer’s income Inferior product negatively related to changes in the buyer’s income >demand falls as the buyer’s income increases Broad categories of products = tend to be normal Particular products within the categories = may be inferior 4. other factors in demand = prices of related products, advertising, durability, season, weather and location complements and substitutes Complements = if an increase in the price of one causes the demand for the other to fall Substitutes = if an increase in the price of one causes the demand for the other to increaseShift to the left: * Increase in the price of a complement * Fall in the price of a substitute Shift to the right * Increase in the price of a substitute * Fall in the price of a complement advertising Informative advertising = communicates information to potential buyers and sellers Persuasive advertising = aims to influence consumer choice An increase in advertising expenditure will increase demand > each additional dollar spent on advertising has a relatively smaller effect on demand = diminishing marginal productEffect of advertising on demand depends on the medium durable goods = provide a stream of services over an extended period of time > buyers have discretion over the timing of purchase Three significant factors for demand: 1. Expectations about future prices and incomes 2. Inter est rates = many buyers need to finance their purchase of durable goods > if interest rates are low the demand for durables will be higher 3. Price of used models = substitutes of a new model 5. market demand Market demand curve graph that shows the quantity that all buyers will purchase at every possible price = analysis is essentially similar to that for an individual demand curve construction = interview all the potential consumers and ask each person the quantity that he er she would buy at every possible price = horizontal summation of the individual demand curves = slopes downwards since the individual demand curves slope downwards other factors = buyers’ income, price of related products, advertising > changes in these factors will shift the entire market demand curveTwo ways of measuring income of country: * The gross national product (GNP) = GDP + net income from foreign sources * The gross domestic product (GDP) = measure the total amount produced in a country for a given year Macro factors: * Income = average, distribution * Demographic = population, age structure, urban-rural * Cultural-social income distribution = the more uneven the distribution of income, the more important it is to consider the actual distribution of in income and not merely the average income when estimating the market demand 6. buyer surplus benefit Marginal benefit maximum amount of money that the buyer is willing to pay for the unit Total benefit = benefit yielded by all the units that the buyer purchases benefit vias-a-vis price Buyer surplus = difference between a buyer’s total benefit from some quantity of purchase and the actual expenditure > a buyer must get some surplus, otherwise he or she will not buy = maximum that a seller can charge is the buyer’s total benefit price changes Gains from a pricecut: * Lower price on the quantity that she would have purchased at the original price = infra marginal units She can buy more = marginal units > extent depends on the buyer’s response to the price reduction = the greater the increase in purchase, the larger the buyer’s gain from the price reduction = when you have to calculate how much you gain from a price cut, always look at the demand curve and see how much you buy at the old price and how much at the new price and calculate the buyers surplus package deals and two-part pricing Package deals = charge buyer just a little less than her/his total benefit = leave buyer with almost zero surplusTwo-art pricing = pricing scheme comprising a fixed payment and a charge based on usage = enables to soak up most of the consumer’s buyer surplus Market buyer surplus = sum of individual buyer surpluses 7. business demand inputs Businesses do not purchase goods and services for their own sake > use them as inputs in the production of other goods and services = use inputs to produce outputs for sale to consumers or other businesses * finished/semi-finished components â€⠀œ. * raw materials and energy. * labor and other services. capital. Demand Demand for inputs depend on: * quantity of final output = shift of the entire demand curve * prices of complements or substitutes in production Marginal benefit = the increase in revenue arising from an additional unit of the input > diminishing marginal benefit = downward sloping demand curve for inputs chapter 3. elasticity 1. introduction Elesticity of demand = measures the responsiveness of demand to changes in an underlying factor (price, income, advertising) Own-price elasticity of demand measures the responsiveness of the quantity demanded to changes in the price of the item 2. own-price elasticity = percentage by which the quantity demanded will change if the price of the item rises by 1% Percentage change in quantity demanded Percentage change in price construction Two ways of deriving: * arc approach = we collect records of a price change and the corresponding change in quantity demanded > own-pric e elasticity as the ratio of the proportionate change in quantity demanded to the proportionate change in price can also be calculated by changing p0 by the average price ((old price + new price)/2) and by changing q0 by the average quantity ((old quantity + new quantity)/2) * point approach = can be derived from the coefficient of price in the equation = calculates the elasticity at a specific point on the demand curve – arc approach: elasticity between two points properties Characteristics: * It’s a negative number * A pure number, independent of units of measure * Ranges from 0 to negative infinity Price elastic if a 1% increase in price leads to more than a 1% drop in quantity demand = if a price increase causes a proportionately larger drop in quantity demanded Price inelastic = if a 1% price increase causes less than 1% drop in quantity demand intuitive factors Availability of direct or indirect substitutes = the fewer substitutes that are available, the less ela stic will be the demand > Demand for a product category will be relatively less elastic than demand for specific products within the category = there are fewer substitutes for the category than for specific products Buyer’s prior commitments Learning * Complementary purchases (spare parts, upgrades, †¦) * Taste = demand less elastic Benefits/costs of economizing = buyers have limited time to spend on searching for better prices > they focus attention on items that account for relatively larger expenditures > separation of buyer and payee elasticity and slope Own price elasticity = describes the shape of only one portion of the demand curve > a change in price, by moving from one part of a demand curve to another part, may lead to a change in own-price elasticity Straight line demand curve demand becomes more elastic at higher prices > incase of other shapes, demand may become less elastic at higher prices Steeper demand curve means demand less elastic = but elasticity is not the same as the slope > slope stays the same, the own-price elasticity varies throughout the length causes by the changes in price and quantity Own-price elasticity can also vary with changes in any of the other factors that affect demand = in that case, demand curve will shift > own-price elasticity may also change 3. forecasting quantity demanded and expenditure expenditure change in price will affect expenditure through the price itself as well as through the related effect on quantity demanded Change in quantity demanded = price elasticity x change in price If demand elastic, price increase leads to * proportionately greater reduction in purchases. * lower expenditure. If demand inelastic, price increase leads to * proportionately smaller reduction in purchases. * higher expenditure. accuracy Discrepancy = the own-price elasticity may vary along a demand curve > the forecast using the own-price elasticity will not be as precise as a forecast directly from the demand curve . other elasticities income elasticity = measures the sensitivity of demand to changes in buyers’ income = percentage by which the demand will change if the buyer’s income rises by 1 % Percentage change in demand percentage change in income = varies with changes in the price and any other factor that affects demand * Depending on whether the product is normal or inferior, income elasticity can be positive or negative * Demand for necessities tends to be relatively less income elastic than the demand for discretionary items cross-price elasticity measures the sensitivity of demand to changes in the prices of related products = percentage by which the demand will change if the price of the other item rises by 1%, other things equal Substitutes = an increase in the price of one will increase the demand for the other = cross-price elasticity positive Complements = an increase in the price of one will reduce the demand for the other = cross-price elasticity negative advertis ing elasticity measures the sensitivity of demand to changes in the sellers’ advertising expenditure = percentage by which the demand will change if the sellers’ advertising expenditure rises by 1%, other things equal > price of the item must remain unchanged > has a much stronger effect on the sales of an individual seller than on the market demand = advertising elasticity of the demand faced by an individual seller tends to be larger than the advertising elasticity of the market demand forecasting the effects of multiple factorsOnly way to discern the net effect of factors pushing in different directions = use the elasticities with respect to each of the variables Percentage change in demand due to changes in multiple factors is the sum of the percentage changes due to each separate factor 5. adjustment time The short run = a time horizon within which a buyer cannot adjust at least one item of consumption or usage The long run = a time horizon long enough for buyers to adjust all items of consumption of usage nondurables the longer the time that buyers have to adjust, the bigger will be the response to a price change > demand for such items will be more elastic in the long run than in the short run Alcohol and tabacco = demand relatively inelastic > discouraging new people from taking up smoking and drinking = demand relatively more elastic in the long run durables = a countervailing effect leads demand to be relatively more elastic in the short run > especially strong for changes in income = drop in income will cause demand to fall more sharply in the short run than in the long runDifference between short- and long-run elasticities = depends on a balance between the need for time to adjust and the replacement frequency effect 6. estimating elasticities data Two sources of data: * Records of pas experiences * Surveys and experiments specifically designed to discover buyers’ preferences > test market Collection in two ways: * Focus on a p articular group of buyers and observe how their demand changes as the factors affecting demand vary over time = time series Compare the quantities purchased in markets with different values of the factors affecting demand = cross section specification To obtain accurate estimates of elasticities = specify all the factors that have a significant effect on demand > specify the mathematical relationship between demand and the various factors Dependent variable = whose changes are to be explained Independent variable = a factor affecting the dependent variable = linear equation in which the dependent variable is equal to a constant plus the weighted sum of the independent variables ultiple regression = can estimate the separate effect of each independent variable on the dependent variable = aims to determine values for the constant and the coefficients Residual = the actual value of the dependent variable minus the predicted value Method of least squares = based on the view that positiv e residuals are as bad as negative residuals while large residuals are disproportionately bad > seeks a set of estimates for the constant and the coefficients to minimize the sum of the squares of the residuals since equally large positive and negative residuals have identical squares, the method treats them identically statistical significance F statistic = measures the overall significance of the independent variables > assumption that there are is no relationship between the dependent variable and the set of independent variables > ranges from 0 to infinity R? = uses the squared residuals to measure the extent to which the independent variables account for the variation of the dependent variable > ranges from 0 to 1 1 means that all the residuals are exactly 0 T-statistic = used to evaluate the significance of a particular independent variable = estimated value of the coefficient divided by the standard error > ranges from negative to positive infinity P value = measures the like lihood that estimated coefficient could be the result of chance under the assumption that the true coefficient is zero = gives the probability that random sampling errors could produce a coefficient as large as found by the least-squares multiple regression model chapter 4. supply . short-run costs Two key decisions: * Continue in operation * Rate at which to operate = depend on the length of the time horizon Short run = time horizon in which a seller cannot adjust at least one input > business must work within the constraints of past commitments Long run = time horizon long enough for the seller to adjust all inputs Difference between both depends on the circumstances fixed vis-a-vis variable costs Fixed cost = cost of inputs that do not change with the production rate > the height of the total cost curve at the zero production rate Variable cost cost of inputs that change with the production rate > to distinguish between fixed and variable costs, a business must analyze how each c ategory of expense varies with changes in the scale of operation Total cost = the sum of fixed cost and variable cost C = F + V Marginal cost = the change in total cost due to the production of an additional unit Average cost = total cost divided by the production rate = unit cost Cq = Fq + Vq > continues to fall with increases in the production rate until it reaches a minimum, thereafter it increases with the production rate the average cost is the average fixed cost plus the average variable cost > if the production rate is higher the fixed cost will be spread over more units Marginal product = increase in output arising from an additional unit of an input > diminishing = the average variable cost will increase with the production rate Where the average variable cost is increasing the relationship between the average cost and the production rate depends on the balance between the declining average fixed cost and the increasing average cost Diminishing marginal product causes margi nal and average cost to rise echnology Two implications: * The curves will change with adjustments in the seller’s technology * Different sellers may have different technologies and hence different cost curves 3. short-run individual supply Assumptions * profit maximization * Business is so small relative to the market that it can sell as much as it would like at the going market price production rate Total revenue = price multiplied by sales Marginal revenue = the change in total revenue arising from selling an additional unit To maximize profit, a business should produce at that rate where its marginal revenue equals its marginal costMarginal revenue is represented by the slope of the total revenue line * Wherever the marginal revenue exceeds the marginal cost, the profit can be raised by increasing production * Wherever the marginal revenue is less than the marginal cost, Luna can raise profit by reducing production break even To decide whether to continue production, the business needs to compare the profit from continuing in production with the profit of shutting down Fixed cost = sunk cost = it has been committed and cannot be avoided > even if the business shuts down, it must still pay the fixed cost F Business should continue production whenR – V – F > – F = R > V P > V/q > R = p x q = short-run break even condition > a business maximizes profit by producing at the rate where the marginal cost equals the price, provided that the price covers the average variable cost individual supply curve Individual supply curve = a graph showing the quantity that one seller will supply at every possible price > for every possible price, a business should produce at the rate that balances it marginal cost with the price Slopes upward = if the seller is to expand production, then it will incur a higher marginal cost Input demandChange in input price: * Shift in marginal cost * Change in profit-maximizing production 4. long-run individual su pply = contracts expire and investments wear out > all inputs become avoidable long-run costs = long-run average cost curve is lower and has a gentler slope > in the long run, the seller has more flexibility in adjusting inputs to changes in the production rate = it can produce at a relatively lower cost than in the short run, when one or more inputs cannot be changed production rate = a rate where its marginal cost equals the price of its output reak even = in the long run, a business should continue in production if the maximum profit from continuing in production is at least as large as the profit from shutting down All costs are avoidable = it the business shuts down, it will incur no costs and so its profit from shutting down is nothing R > C P > C/q = business should continue in production so long as total revenue covers total cost individual supply curve = that part of its long-run marginal cost curve, which lies above its long-run average cost curve Two views: * For every po ssible price, it shows the production rate For each unit of item, it shows the minimum price that the seller is willing to accept 5. market supply Market supply curve = a graph showing the quantity that the market will supply at every possible price = sum of the quantities supplied by each individual seller short run Market supply curve = begins with the seller that has the lowest average variable cost Change in an input price will affect the seller’s marginal cost at all production levels > shift the entire market supply curve * Increase in price of an input will shift the market supply up * Reduction in price of an input will shift the market supply down long run every business will have completely flexibility in deciding on inputs and production > freedom of entry and exit is the key difference between the short run and long run Sellers that cannot cover their total costs will leave the industry until all the remaining sellers break even > an industry where businesses van make profits will attract new entrants = market supply will rise and pushes down the market price hence the profit will drop Quantity supplied will adjust in two ways when there’s a change in price: * All existing sellers will adjust their quantities supplied along their individual supply curves * Some sellers may enter or leave the market Graph = slope is more gentler and may be flat 6. seller surplus price vis-a-vis marginal cost Seller surplus difference between a seller’s revenue from some quantity of production and the minimum amount necessary to induce the seller to produce that quantity > short-run seller surplus can also be defined as the difference between the seller’s revenue and the variable cost Short-run seller surplus = total revenue less variable cost Long-run seller surplus = total revenue less total cost purchasing = a buyer can apply the concept of seller surplus to reduce the cost of its purchases market seller surplus = sum of the individual seller surpluses = difference between the market revenue from some production rate and the minimum amount necessary for the market to produce that quantity 7. elasticity of supply measures the responsiveness of supply to changes in underlying factors such as the price of the item and inputs price elasticity = measures the responsiveness of the quantity supplied to changes in the price of the item = percentage by which the quantity supplied will change if the price of the item rises by 1%, other things equal Percentage change in quantity supplied Percentage change in price properties * Pure number * Positive number intuitive factors Intuitive factors: * Capacity utilization > a seller that has consiverable excess capacity will step up production in response to even a small increase in price = individual supply will be relatively elastic * Adjustment time long-run supply is relatively more elastic than the short-run supply chapter 5. competitive markets 2. perfect competition Five con ditions: 1. The product is homogeneous 2. There are many buyers, each of whom purchases a quantity that is small relative to the market 3. There many sellers, each of whom supplies a quantity that is small relative to the market 4. New buyers and sellers can enter freely, and existing buyers and sellers can exit freely 5. All buyers and sellers have symmetric information about market conditions homogeneous product = the product is always the same > competition is stronger many small buyers = no buyer can get a lower price than others > all buyers face the same price all buyers compete on the same level playing field When some buyers have market power it is not possible to construct a market demand curve many small sellers = no seller has market power > no seller can get a higher price than other free entry and exit = no technological, legal or regulatory barriers constrain entry or exit > the market price cannot stay above a seller’s average cost for very long > degree of com petition also depends on barriers to exit = it must consider the exit cost when deciding whether to enter the market symmetric information = no seller can enjoy the privilege of secret information 3. market equilibrium the price at which the quantity demanded equals the quantity supplied > when market out of equilibrium, market forces pushes price towards equilibrium demand and supply At the market equilibrium, there is no tendency for price, purchases or sales to change excess supply Not in equilibrium = market price will tend to change in such a way as to restore equilibrium Excess supply = the amount by which the quantity supplied exceeds the quantity demanded > suppliers would compete to clear their extra capacity and the market price would drop back toward the equilibrium excess demand = the amount by which the quantity demanded exceeds the quantity supplied > when the price is below the equilibrium level buyers would compete for the limited capacity significance of equilibrium Two reasons: * If a market is not in equilibrium, either buyers or sellers will push the market toward equilibrium * By comparing equilibria we can address a wide range of questions > when prices are quite flexible, the market will adjust to the new equilibrium fairly quickly, so comparing equilibria is a fairly accurate method of analysis Neither buyers nor sellers may face rationing 4. supply shift equilibrium change When price of input falls >entire supply curve shifts down = at every possible sellers want to supply more price elasticitiesDownward or upward shift in the supply curve will change the equilibrium price by no more than the amount of the supply shift > change in equilibrium price depends on the price elasticities of demand and supply Inelastic demand = buyers are completely insensitive to the price > when supply curve shifts, the buyers do not change their behavior = they continue to purchase exactly the same quantity Elastic demand = buyers are extremely sensitive t o price > equilibrium price does not change at all If the demand is more elastic then the change in the equilibrium price result from a shift in supply will be smaller Inelastic supply = sellers are completely insensitive to the price > if their costs change they will not change the quantity supplied Elastic supply if the cost of an input changes, the marginal cost changes by the same amount at all production levels common misconception = if sellers’ costs fall by some amount, then the market price will fall by the same amount Overlooks the impact of: * The shift in supply on buyers = if they are very sensitive to price, the shift in supply would result in no change to the equilibrium price * The price sensitivity of sellers = if sellers are insensitive to price, then the drop in cost will not induce them to sell more Price change * Smaller if demand is more elastic than supply * Bigger if supply is more elastic than demand 5. demand shiftDemand shifts down (left) > new equil ibrium with lower price and lower quantity Demand shifts up (right) > new equilibrium with higher price and higher quantity 6. adjustment time short-run equilibrium = point where its short-run marginal cost equals the marketprice long-run equilibrium = the point where its long-run marginal cost equals the market price demand increase Short-run equilibrium = the extent to which a seller expands its operations depends on the slope of its short-run marginal cost curve > if steep then the price increase will not lead the seller to expand operations by very much Long-run equilibrium = there is enough time for all costs to become avoidable, for new sellers to enter the market and for existing sellers to leaveThe increase in demand raises the market price and hence each seller’s profit = will attract new sellers to enter the market Although the price is higher than in the original equilibrium, higher input prices result in higher marginal and average cost curves > in the new long-ru n equilibrium, each individual seller just breaks even demand reduction Extent of cutback depends on two factors: * Extent of sunk costs = in an industry involving substantial sunk costs, the reduction in demand will translate into a relatively large drop in price and a small reduction in quantity * Slope of the seller’s short-run marginal cost curve in the new long-run equilibrium there will be a smaller number of sellers and each will exactly break even with average total costs equal to the market price price and quantity over time Two general points: * In response to shifts in demand = market price will be more volatile in the short run than the long run * In response to shifts in demand = there is a greater change in the market quantity over the long run than in the hort run In industries with substantial sunk costs the adjustment of production will be concentrated in the long run In industries where costs are minor the adjustment to shifts in demand will be relatively sm oother > the market price will be relatively less volatile chapter 6. conomic efficiency 2. conditions for economic efficiency Economically efficient = if no reallocation of resources can make one person better off without making another person worse off > persons may be human beings or businesses sufficient conditions Three sufficient conditions based on users’ benefits and supplier’s costs 1. All users achieve the same marginal benefit 2. All suppliers operate at the same marginal cost 3. Every user’s marginal benefit is equal to every supplier’s marginal cost Equal marginal benefit If not equal: * Provide more to user with higher marginal benefit * Take away from user with lower marginal benefit society as a whole would be better off Equal marginal cost If not equal: * Supplier with lower marginal cost should produce more * Supplier with higher marginal cost should produce less Marginal benefit equals marginal cost If not equal: * If MO > MC , produce more of the item * If MO < MC, produce less of the item philosophical basis Technical efficiency = providing an item at the minimum possible cost > does not imply that scarce resources are being well used The concept of economic efficiency extends beyond technical efficiency Economic efficiency assesses resource allocations in terms of each individual user’s evaluation of the benefit internal organization production will be efficient if all users achieve the same marginal benefit, all suppliers operate at the same marginal cost and every user’s marginal benefit balances every supplier’s marginal cost 3. adam smith’s invisible hand Invisible hand = market price guides buyers and sellers, acting independently and selfishly to channel scarce resources into economically efficient uses competitive market = satisfies all three requirements for economic efficiency market system = an economic system in which resources are allocated through the independent decisio ns of buyers and sellers, guided by freely moving prices Price performs two roles: * It communicates all the necessary information It provides a concrete incentive for each buyer to purchase the quantity that balances marginal benefit with the market price > it provides a concrete incentive for every seller to supply the quantity that balances marginal cost with the market price 4. decentralized management internal market Transfer price = price charged for the sale of an item within an organization > should set it equal to market price = by decentralizing the management is establishing an internal market that is integrated with the external market implementation Two general rules: * If there is a competitive market for the item, the transfer price should be set equal to the market price * Producing units should be allowed to sell the product outside buyers and consuming units should be allowed to buy the product from external sources Outsoarcing = purchase of services or supplies fr om external sourcesAny organization that used resources or products for which there are competitive markets can apply decentralization to achieve internal economic efficiency 5 incidence = both pricing methods have exactly the same impact on the manufacturer and customer freight inclusive pricing Cost and freight = a price that includes freight Ex-works pricing = does not include the freight cost > entire supply supply curve will shift down = with ex-works demand, the buyers will now have to pay the freight cost > price is lower = total price is equal if you increase the price with the freight cost Price and sales are the same whether the sellers do or do not include the freight cost in their prices incidence the change in the price for a buyer or seller resulting from a shift in demand or supply > whether manufacturers set prices that do or do not include the feight cost, the incidence is the same = the incidence does not depend on which side initially pays the freight cost > depen ds only on the price elasticities of demand and supply taxes = government depend on tax revenues to support public services such as national defense, †¦ > some are levied on consumers, others on businesses buyer’s vis-a-vis seller’s price Seller’s price = buyer’s price – tax Buyer’s price = price that buyers pay Seller’s price = price that sellers receive > p156 tax incidence buyer’s price will rise by less than the amount of the tax and the seller’s price will drop by less than the amount of the tax > tax is generally shared between buyers and sellers according to their relatively price elasticities * Less sensitive = will bear the relatively larger portion of the tax part II market power chapter 7. costs 2. economies of scale = analyze how costs depend on the scale or rate of production > decision on scale also depends on market demand and competition Fixed cost = cost of inputs that do not change with the product ion rate Variable cost = cost of inputs that change with the production rate marginal and average costsMarginal cost = rate of change of the variable cost > if average variable cost remains constant, then the marginal cost will be the same Economies of scale = increasing returns to scale = a business for which the average cost decreases with the scale of production > marginal cost will be lower than the average cost = since the marginal unit of production costs less than the average, any increase in production will reduce the average intuitive factors Two possible sources: * Substantial fixed inputs = at a larger scale, the cost of the fixed inputs will be spread over more units of production business with a strong element of composition, design or invention * If the average variable cost falls with the scale of production = whether the average variable cost increases or falls depends on the particular technology of the business diseconomies of scale = a business where the average c ost increases with the scale of production If: * Fixed cost is not substantial * And variable cost rises more than proportionately with the scale of production strategic implications If economies of scope: * Large scale * Market concentrated, few suppliers * Monopoly and oligopoly If diseconomies of scope * Small scale * Market fragmented * Perfect competition 3. economies of scope if the total cost of production is lower when two products are produced together than when they are produced separately Diseconomies of scope = if the total cost of production is higher when two products are produced together joint cost = cost of inputs that do not change with the scope of production strategic implications Example: telecommunication and broadcasting Produce/deliver multiple products * Product mix * Brand extension Core competence = a generalized expertise in the design, production and marketing of products based on common or closely related technologies = joint cost diseconomies of scope = if the total cost of production is higher when the two items are produced together than when they are produced separately arise where the joint costs are not significant and making one product increases the cost of making the other in the same facility 4. experience curve Accumulated experience = matters in industries characterized by relatively short production runs and a relatively substantial input of human resources As engineers and workers gain experience in production, they become more proficient individually and as a team > they devise new ways to reduce cost, including better tools and more cost-effective procedures Experience curve = shows how the unit cost of production falls with cumulative production over time > Distinguish from economies of scope within one production period Conditions: Relatively large human resources input per unit of production * Relatively small production runs 5. opportunity cost = it is necessary to look beyond the conventional accounting statem ents Relevance = key principle = managers should consider only relevant costs and ignore others alternative courses of action = to evaluate a business > conventional income statement does not present the revenues and costs of the alternative courses of action = costs are actually higher because of the opportunity cost opportunity cost defined Opportunity cost = net revenue from the best alternative course of action uncovering relevant costs Two ways to uncover relevant costs: Consider the alternative courses of action * Use the concept of opportunity cost = both approaches lead to the same business decision Alternative courses of action and opportunity cists change with the circumstances and hence are more difficult to measure and verify opportunity cost of capital A business that is partly financed by debs will appear to be less profitable than an otherwise identical business that is completely financed by equity > equity capital is not costless! = it has an opportunity cost Econom ic value added = net operation profit after tax subject to adjustments for accounting conventions less a charge for the cost of capital they are less likely to be biased in favor of capitalintensive activities A complete measure of business e performance should take account of the opportunity cost of equity capital 6. transfer pricing Transfer price = transfer price of an internally produced input should be set equal to its marginal cost perfectly competitive market Transfer price = market price full capacity = marginal cost of the input is not well defined > transfer price should be set equal to the opportunity cost of the input which is the marginal benefit that the input provides to the current user = compare marginal benefit across internal users 7. sunk costs a cost that has been committed and so cannot be avoided > not relevant to business decisions alternative courses of action Depend on: * Prior commitments * Planning horizon Continue | Cancel | Cont. margin | $280,000 | $0 | Advert agency | $50,000 | $50,000 | Magazine | $250,000 | $50,000 | Profit | ($20,000) | ($100,000) | Continue | Cont. margin | $280,000 | Advert agency | $0 | Magazine | $200,000 | Profit | $80,000 | = only avoidable costs strategic implications = managers should ignore sunk costs and consider only avoidable costs > sunk costs are not relevant for pricing, investment, or any other business decision Two ways of dealing with sunk costs: Explicitly consider the alternative courses of action * Remove all sunk costs from the income statement = both approaches lead to the same business decision > it is easier to consider the alternative courses of action explicitly when multiple alternatives commitments and the planning horizon To identify sunk costs consider: * Past commitments * Planning horizon The longer the planning horizon, the more time there will be for past commitments to unwind and hence the greater will be management’s freedom of action Short-run planning horizon = so me sunk costs Long-run horizon = no sunk cost Sunk vis-a-vis fixed costs Fixed cost two different senses: A cost that cannot be avoided once incurred * A cost of inputs that do not change with the production rate = two types of costs have very different implications for business decisions Not all sunk costs are fixed = cost op public service employees is sunk, once they secure tenure. However, government could have hired only temporary workers (no sunk costs) 8. statistical methods multipple regression = to investigate the extent of fixed costs and economies of scale forecasting = to forecast the dependent variable when the independent variables take different values Other applications Investigate the presence of joint costs across two products hapter 8. Monopoly 1. Introduction Monopoly = if there is only one seller in a market Monopsony = if there is only one buyer in a market 2. sources of market power = the barriers that deter or prevent entry by other competing sellers/buyers m onopoly Unique resource = access to unique physical, natural or human resources Intellectual property = property over inventions or expressions Patent = gives the owner an exclusive right to the invention for a specified period of time Copyright = establishes property in published expressions, including computer software and engineering drawings Economies of scale and scope Product differentiation differentiating itself from competitors > through product design, distribution, and advertising and promotion Regulation = government may decide to award an exclusive franchise to one provider > government hopes to avoid duplication and reduce the cost of the service monopsy = same factors as a monopoly Additional reason for presence = existence of a monopoly > a seller that has a monopoly over some good or service is also likely to have market power over the inputs into that item 3. Monopoly pricing Monopoly has to consider how its sales will affect the market price Given the market deman d curve a monopoly can Set the price and let the market determine how much it will buy * Decide how much to sell and let he market determine the price at which it is willing to buy that quantity Monopoly is choosing a combination of price and sales off the demand curve > a monopoly can set either the price or sales but not both revenue Inframarginal units = those other than the marginal unit Marginal revenue from selling an additional unit will be less than the price of that unit = marginal revenue is the price of the marginal unit minus the loss of revenue on the inframarginal units > difference between the price and the marginal revenue depends on the price elasticity * Demand elastic = seller need not reduce the price very much to increase sales > marginal revenue will be close to the price * Demand inelastic seller must reduce the price substantially to increase sales > marginal revenue will be much lower than price Marginal revenue can be negative = if the loss of revenue on th e inframarginal units exceeds the fain on the marginal unit Profit maximizing price Profit maximizing scale of operation = the scale at which the marginal revenue balances the marginal cost Contribution margin = total revenue less the variable cost > a seller maximizes profit by operating at a scale where the sale of an additional unit will result in no change to the contribution margin economic inefficiency Marginal benefit exceeds the marginal cost 4. demand and cost changes Change in demand: * New marginal revenue * Original marginal cost = new profit-maximizing sales and price arginal cost change = change in price is less than change in marginal cost When there is a change in either demand or cost, the extent to which a monopoly should adjust its price depends on the shapes of both it marginal revenue and marginal cost curves > it should adjust the price until its marginal revenue equals its marginal cost fixed cost change = profit-maximizing price and scale do not depend in any way on the fixed cost > changes in the fixed cost will not affect the marginal cost curve If the fixed cost is so large that the total cost exceeds total revenue, then the monopoly will prefer to shut down 5. advertising Promotion the set of marketing activities that a business undertakes to communicate with its customers and sell its products > advertising, sales promotion and public relations benefit of advertising Advertising can cause: * Shifting out the demand curve * Demand to be less elastic Benefit of advertising = change in the contribution margin Net benefit = the change in the contribution margin less the advertising expenditure > advertise up to the point that the increase in contribution margin from an additional dollar of advertising is exactly 1 $ = more appropriate to consider the effect of advertising on the contribution margin generated by the product dvertising-sales ratio Incremental margin = price less the marginal cost = increase in the contribution margin fro m selling an additional unit, holding the price constant Incremental marginal percentage = ratio of the price less the marginal cost to the price > measures the production of benefit by each dollar of advertising Advertising-sales ratio = incremental margin multiplied by the advertising elasticity of demand = says how much of the revenue should be invested in advertising 6. research and development = principles are the same as for advertising and promotion Benefit : * Shifting out the demand curve * Causing it to be less elasticNet benefit from R&D = change in the contribution margin less the R&D expenditure R&D-sales ratio = incremental margin percentage multiplied by the R&D elasticity of demand project evaluation = decisions on individual R&D projects should account for the timing of costs and benefits > p 212 7. Market structure effects of competition General points: * A monopoly restricts production below the competitive level and it can set a relatively higher price extracting larger profit * Profit of a monopoly exceeds what would be the combined profit of all the sellers if the same market were perfectly competitive potential competition Perfectly contestable a market in which sellers can entry and exit at no cost > monopoly cannot raise price substantially above its long-run average cost > depends on the extent of barriers to entry and exit lerner index = incremental margin percentage > can be used to compare the degree of monopoly power in markets with different prices > captures the impact of potential competition (P – MC) / P Perfectly competitive market = lerner index equals 0 Monopoly = bigger than 0 Problem = it will not detect the power that a monopoly does not exercise 8. monopsy = buyer with market power restricts purchases to depress the price Trades off: * Marginal expenditure * Marginal benefit Marginal expenditure = change in expenditure resulting from an increase in purchases by one unit maximizing net benefit a monopsy will maxim ize its net benefit by purchasing the quantity at which its marginal benefit equals its marginal expenditure A monopsony restricts purchases to get a lower price and increase its net benefit above the competitive level chapter 9. Pricing 2. uniform pricing = policies where the seller charges the same price for every unit of the product price elasticity = percentage by which the quantity demanded will change if the price of the item rises by 1% Demand inelastic > sales fall less than proportionately with the increase in price = total revenue will increase profit maximizing price Incremental margin percentage = – 1/price elasticity of demand demand and cost changesPricing rule shows how a seller should adjust its price when there are changes in the price elasticity of demand or marginal cost > a seller should not necessarily adjust the price by the same amount as a change in marginal cost common misconceptions * Contribution margin percentage = revenue less variable cost divide d by revenue > accounting systems often assume that costs are proportional = marginal cost is the same as the average variable cost = contribution margin percentage equals the incremental margin percentage * the belief that the profit maximizing price depends only on the elasticity = ignores costs * set the price by marking up average cost > problems: * in economies of scale, the average cost depends on the production scale > the need of an assumption about the scale sales and production scale depend on the price * it gives no guidance as to the appropriate mark-up on average cost Shortcomings: * leaves buyers with a lot of buyer’s surplus * does not sell to every potential buyer 3. complete price discrimination price discrimination = selling down the market demand curve = pricing policy under which a seller sets prices to earn different incremental margins on various units of the same or a similar product Complete price discrimination = a pricing policy where the seller pric es each unit at the buyer’s benefit and sells a quantity such that the marginal benefit equals the marginal cost > it charges every buyer the maximum that he or she is willing to pay for each unit comparison with uniform pricing resolves the two shortcomings of uniform pricing * no buyer’s surplus * economically efficient quantity information = to implement complete price discrimination, the seller must know each potential buyer’s individual demand curve > not enough to know the market demand curve or the price elasticity of the individual demand curves 4. direct segment discrimination Segment = significant cohesive group of buyers within a large market homogenous segments Direct segment discrimination = the policy of setting different incremental margins to each identifiable segment heterogeneous segments Not enough information: * apply uniform pricing within each segment prices are such that the incremental margin percentage for each segment equals the recipro cal of the absolute value of the segment’s price elasticity of demand * apply indirect segment discrimination within each segment implementation Conditions: * To implement direct segment discrimination, the seller must identify and be able to use some identifiable and fixed buyer characteristic that segments the market > otherwise buyer might switch segments * Seller must be able to prevent buyers from reselling the product among themselves = price discrimination is relatively more widespread in services than goods and is especially common in personal services Policy of direct segment discrimination prices should be set to derive a relatively lower incremental margin percentage from the segment with the more elastic demand and a relatively higher incremental margin percentage from the segment with the less elastic demand 5. location Seller can discriminate on the basis of the buyer’s location on two ways: * Free on board (FOB) = a common price to all buyers that does n ot include delivery > the differences among the prices at various locations are exactly the differences in the costs of delivery to those locations * Ignores the differences between the price elasticities of demand in the various markets * Cost including freight = delivered pricing = set prices that include delivery the difference in the prices between the two market will simply be the result of the different incremental margin percentage and the different marginal costs of supplying the two markets A lower margin does not necessarily mean a lower price because there is a transportation cost restricitng resale = if the difference between the prices of a product between two markets exceeds the transportation cost, consumers might buy the item in one market and ship it to the other > gray market = parallel importing 6. indirect segment discrimination = when seller may know that specific segments have different demand curves but cannot find a fixed characteristic with which to discrimi nate directly Indirect Segment discrimination policy of structuring a choice for buyers so as to earn different incremental margins from each segment > voorbeeld p 244-245 implementation Two conditions: * Seller must have control over some variable to which buyers in the various segments are differentially sensitive * Buyers must not be able to circumvent the discriminating variable = seller cannot prevent buyers from reselling the product 7. bundling = combination of two or more products into one package with a single price pure bundling = a pricing policy that offers only a bundle and does not allow the alternative of buying the individual products = more profitable than uniform pricing but less than direct segment discrimination mixed bundling offers buyers a structured choice between the budle and the individual products = form of indirect segment discrimination implementation Three conditions to be effective: * Where there is substantial disparity among the segments in their be nefits from the separate products * Where the benefits of the segments are negatively correlated in the sense that a product that is more beneficial to one segment provides relatively little benefit to another * Where the marginal cost of providing the product is low = when provision of the product involves a substantial marginal cost, a seller should consider mixed bundling 8. selecting the pricing policy Direct discrimination works through buyer attributesIndirect segment discrimination works through product attributes > products under indirect discrimination may provide less benefit than those with direct segmentation > indirect discrimination may involve relatively higher costs > indirect discrimination relies on the various segments voluntarily identifying themselves through the structured choice cannibalization = when the sales of one product reduce the demand for another product with a higher incremental margin > seller cannot discriminate directly and must rely on a structur ed choice of products to discriminate indirectly but discriminating variable does not perfectly separate the buyer segmentsWays to mitigate cannibalization: * Product design * By controlling availability chapter 10. strategic thinking 1. introduction Strategy = a plan for action in a situation where the parties actively consider the interactions with one another in making decisions Game theory = a set of ideas and principles to guide strategic thinking * Simultaneous actions = strategic form * Sequential actions = extensive form 2. nash equilibrium = a framework for strategic decisions that must be taken simultaneously A strategy is dominated = if it generates worse consequences than some other strategy regardless of the other parties’ choice Game in strategic form a tabular representation of a strategic situation, showing one party’s strategies along the rows, the other party’s strategies along the

September / 11 The Biggest Attack On American Soil And It

Throughout American history and still today these conspiracy theories always come up about any major tragedies. Some have been true but until someone within our own government comes out and says that these theories are true, they will continue to be all make believe. 9/11 is one of the biggest attacks on American soil and it also has a lot of conspiracies surrounding it. What really hit the towers? Where they commercial jet liners? How does a 747 leave that small of a hole in the Pentagon? These are some of the questions surrounding it. What it all comes down to though is what makes these theories so fascinating to Americans. What makes these so believable and to think that our own government would do this to us is just crazy, or is it? When looking at 9/11 we all know that the World Trade Center and the Pentagon were attacked, and the WTC twin towers both collapsed to the ground. They were said to be hit by American Airlines plane, but from some conspiracies they are said to be stru ck by an unmarked plane, and right before impact they saw a flash which is said to be a missile being shot into the tower right before the plane. Looking at this it looks like a military plane was flown into the towers. It is also said to be a controlled demolition and bombs planted in the basement of the towers, Kellen explains this from an interview from a Janitor of the tower, â€Å"I felt an upward explosion from underneath me, and then I heard the other explosion from above.† This came from theShow MoreRelatedThe Attack On The World Trade Center Bombing1092 Words   |  5 PagesAmerica has seen many terrorist attacks throughout the world and at home. Seeing them around the world may have hurt, but not as bad as seeing it in your own backyard, when you and your neighbors are being targeted. By definition Terrorism is usually a small group who kills suddenly or secretively. 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Reliability of the Media Essay - 947 Words

Reliability of the Media Growing up in America today means being exposed to numerous half truths. These are readily found on the television, newspapers, radio, and movies. The truth is hardly ever told in its complete form. Take for instance the local news broadcast, we watch it and take it for truth. We tend to give credibility to these newscasters based on the fact that they are representing major broadcast stations. These stations are supposed to be reliable and credible sources of information. In reality the facts are rarely ever told in complete form to the public. Bits and pieces of collected information is dressed up and edited to create a â€Å"news item†. Many times a station has to retract statements due to over-embellishment. The†¦show more content†¦In the movie â€Å"Mississippi Burning† we see a dramatized version of a non-fiction event that occurred in Mississippi in 1964. The event that occurred in June of 1964 was the slaying of three civil rights activists. 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