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F I R M S A N D M A R K E T S I
MPA 612: Economy, Society, and Public Policy February 25, 2019
Fill out your reading report
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F I R M S A N D M A R K E T S I MPA 612: Economy, Society, and - - PowerPoint PPT Presentation
F I R M S A N D M A R K E T S I MPA 612: Economy, Society, and - - PowerPoint PPT Presentation
F I R M S A N D M A R K E T S I MPA 612: Economy, Society, and Public Policy February 25, 2019 Fill out your reading report on Learning Suite P L A N F O R T O D A Y Demand and WTP XYZ Frames Scale, location, networks, and time D E M
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D E M A N D A N D W T P
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W I L L I N G N E S S T O P A Y
How much you value (and would pay) for something
Reflects aggregate preferences
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F I N D I N G W T P
“Would you be willing to spend $X for Y?” Count all the people who are willing to pay at each price
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1 2 3 4 5 6 7 8 8,000 16,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000 80,000 Quantity Q: pounds of Cheerios Price P: dollars per pound
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W T P = D E M A N D
1 2 3 4 5 6 7 8 8,000 16,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000 80,000 Quantity Q: pounds of Cheerios Price P: dollars per pound
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X Y Z F R A M E S
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Specifications
Squares attached at all four corners using labels Labels cannot be wider than sticks Squares must be square when inspected Labels must be cut (not torn) with the scissors
Costs
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
$2 per good frame
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Round 1
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
1 worker allowed
$2 per good frame
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Round 1
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
1 worker allowed
$2 per good frame
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Round 2
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
2 workers allowed
$2 per good frame
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Round 2
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
2 workers allowed
$2 per good frame
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Round 3
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
Unlimited workers allowed
$2 per good frame
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Round 3
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
Unlimited workers allowed
$2 per good frame
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Round 4
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
Unlimited workers allowed
$2 per good frame
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Round 4
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
Unlimited workers allowed
$2 per good frame
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Round 5
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
Unlimited workers allowed
$2 per good frame
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Round 5
Table rental: $1.00 Scissor rental: $0.50 Popsicle stick: $0.10 Label per corner: $0.05 Wage per employee: $0.40
Unlimited workers allowed
$2 per good frame
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Fixed costs Variable costs Average costs Cost function shape Revenue Profit
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Total costs (TC) Total revenue (TR) Profit (π = TR − TC) Unit cost × quantity Price × quantity (P × Q) − ($1 × Q) $1 × Q P × Q π = (P − $1) × Q
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1 2 3 4 5 6 7 8 9 10 8,000 16,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000 80,000 Price P: dollars per pound Quantity Q: pounds of Cheerios $60,000 $34,000 $23,000 $10,000 $0
I S O P R O F I T C U R V E S
These are real! (P − $1) × Q (or some similar equation)
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P R O F I T M A X I M I Z A T I O N
Feasible Set
1 2 3 4 5 6 7 8 9 10 8,000 16,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000 80,000 Price, P: dollars per pound Quantity, Q: pounds of Cheerios $60,000 $34,000 $23,000 $10,000 $0 Demand curve E
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S C A L E , LO C AT I O N , N E T W O R K S , A N D T I M E
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S I Z E A N D L O C A T I O N Economies of scale
Cost to make stuff goes down as you make more stuff
Economies of agglomeration
Cost to make stuff goes down as you clump together
Network effects
Cost to make stuff goes down when everyone uses your stuff
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E C O N O M I E S O F S C A L E If you double the inputs, you get more than double the outputs
If you {{increase}} the inputs, you get more than {{that increase in}} the outputs
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S C A L E , L O C A T I O N , N E T W O R K , O R N O T H I N G ?
Walmart’s distribution network Costco Henry Ford’s assembly line eBay and PayPal Doubling a recipe QWERTY and Dvorak keyboards Rural Chinese moving to cities
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