Lecture 1: Microeconomics and Biz Strategy
References: Pindyck&Rubinfeld. Chap.1
What are the firm’s important functions and strategies ?
1. Selling need to know consumers purchasing behavior
for example, what if the price increases: price elasticity of demand marketing/product positioning strategies
Topics 3-5 lectures
2. Production Supply function/producers output decision
how to produce?
Firms output decision: Short run vs LR
For example, should the firm continue producing even though loss? Topic 6.
3. Managerial Operation organisation aspect of the firm
Institutional setting within which diverse entities interact and come into equilibrium - Topics 11-12.
4. Market equilibrium changing biz environment
- Industry analysis: strategic groups/the five forces model
- Industry structure and firms behaviour
- Topic 2, 7 - .
5. Information implications to managerial operation/selling - for example, what if there is asymmetric infor b/ owners and managers or - b/ sellers and buyers
- Topics 11-12.
6. Market structure and rivalry
- various oligopoly firms behaviours
- Topics 9-10.
Linking Biz Strategy and Microeconomics: Some cases
1. How to respond ____consumers________ behavior
Cf. Leather Jacket industry vs. environmental protection, Accommodation cost in GC vs. terrorism
2. Market __positioning______ strategy
Cf. Volvo’s strategy focusing on safety in motor vehicle industry
3. _____Price__ competition
Cf. Quantas vs Virgin Blue’s competition
4. ___Cost____of production/ R&D investment
Cf. Dell company’s introduction of just-in-time delivery system to reduce inventory loading.
5. __Business type_______ strategy
Cf. Foreign direct investment vs joint venture; internal production vs outsourcing
6. Corporate _____governance______
Cf. Some argue that ‘crony capitalism’ caused the Asian crisis in 1997; Collapse of HIH insurance co. in 2001
7. Implication of asymmetric infor. to biz strategy
Cf. product warranty; advertisement to assure quality of products
Goal: How to ____outperform______ the market?
why some firms are doing well, some others not?
How organisation identifies the market demand, adapt to changing environment and capitalising the changing environment to increase profits.
(1) Big Decision/commitment:
strategic (rivalry) decision
affect the firms success/failure
(2) Organisation strategy to help the organisation to accomplish the goal
Microeconomics is concerned with the behaviour of individual economic units and their interactions. The two types of economic units typically considered are firms and consumers. The major type of interaction that is usually analysed is that of market interaction.
provides analytical techniques and underlying principles applicable to different strategic situations.
(1) analysis of optimisation, given constraints, is crucial to understand consumers behaviour and the firms production decision (2) the firms big decision should be based on efficient resource allocation, which is the prime goal of microeconomics. (3) Marginal decision making: marginal benefits vs marginal costs; Marginal revenue vs marginal costs.
In 1991, the Ford Motor Company introduced the Explorer, which became the best-selling sport utility vehicle (SUV) in the US. In 1997, Ford introduced the Expedition, a larger and roomier SUV. This car was also a big success and contributed significantly to Ford’s profits. By 2002, Ford was offering six SUV models and manufacturing over a half dozen others through the subsidiaries. In the period 2005 to 2007, higher gas prices and growing concerns about global warming took a toll on all SUV sales, and Ford’s profits turned to losses. In response, Ford worked on developing new and smaller cars. But Ford also...
Please join StudyMode to read the full document