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Category Archives: Economics
Economies of scale: the good and bad
Today, we’ll look at the other side of economies of scale in a common financial ratio used to forecast expenses: SG&A/Sales. Fixed components of SG&A tend to give economies of scale to the SG&A/Sales ratio. Before taking an analytical approach … Continue reading
Posted in Accounting, Economics, Finance
Tagged economies of scale, financial ratio analysis
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Strategy models: Five Forces and Game Theory, a narrative in comparison
Competitive Forces The dominant strategy paradigm in the 1980s, the competitive forces approach pioneered by Michael Porter views the essence of competitive strategy formulation as relating a company to its industry in which it competes, the strategic group it is … Continue reading
Posted in Economics, Game Theory, Strategy
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Designing supplier contracts: Asymmetric information
How does Rackspace, a hosting services provider, structure supplier contracts? Suppliers might have a fixed cost per unit but this information is not public knowledge. Rackspace must assume the probability supplier is low cost is ‘p’ and ‘1-p’ is the … Continue reading
Posted in Economics, Game Theory, Strategy, Technology
Tagged asymmetric information, game theory
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Maximizing profits when demand is known
Maximizing Profits When Demand is Semi-Log We want to maximize profits, or (P-MC)*Q. Our demand function is given as ln(Q) = aP + b. To get Q from ln(Q), we use the exponential function (since e^ln(x) = x): e^lnQ = e^(aP+b) … Continue reading
Posted in Economics, Strategy
Tagged demand modeling, linear demand, profit modeling, semilog demand
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Linear and log models for modeling demand
Price sensitivities of demand differ depending on the product and the market. We can model our demand function to reflect how we think quantity responds to price. The following post will use calculus. If you don’t like calculus, the important … Continue reading
Posted in Economics, Strategy
Tagged calculus, log-linear, log-log, price elasticity, semilog
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Sunk costs and Impulse
It seemed intuitive to me that if I had a lot invested in creating a product or service, I would want to keep prices high for as long as possible. However, if I entered a market with gaining market share … Continue reading
Macroeconomics Final
Well, what a day! We had macro finals at Haas today. The Anderson Hall was packed with Oski and Axe cohorts- I was a few minutes late (thanks to the early morning revision!) but found a good seating spot. 10 … Continue reading
Posted in Economics
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Rates of inflation
It turns out that other things being constant, domestic inflation will cause the value of a nation’s currency to depreciate in the foreign exchange market! Holy hell, it will. Deflation has the opposite effect: it results in appreciation of the … Continue reading
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