Notes, summaries, assignments, exams, and problems for Economics

Theory of Indifference Curves

Developed by Prof. Thomas S. Alvarez

ECONOMICS AND INDUSTRIAL ORGANIZATION I

Indifference Curves

The table below shows points in four different indifference curves for a consumer.
(a) Draw the indifference curves I, II, III, and IV on the same set of axes.
(b) What are indifference curves?

I II III IV
Qx Qy Qx Qy Qx Qy Qx Qy
2 13 3 12 5 12 7 12
3 6 4 8 5.5 9 8 9
4 4.5 5 6.3 6.3 8.3 9 7
5 3.5 6 5 7 7 10 6.3
6 3 7 4.4 8 6 11 5.7
7 2.7 8 4 9 5.4 12 5.3

(a)

(b) Indifference curves graphically display the tastes and preferences of consumers (in the analysis of utility, the total utility curve introduced consumer tastes). The consumer is indifferent to all the various combinations of X and Y on the same indifference curve...

Key Business Formulas

• Total Cost (TC): TC = FC + VC
• Average Total Cost (ATC): ATC = TC / Q
• Average Variable Cost (AVC): AVC = VC / Q
• Revenue: Price per Unit x Units Sold (P * Q)
• Profit: Revenue - Total Cost

Business Criteria Classification

1. According to the Nature of Economic Activity

• Primary-sector firms: Obtain useful resources from nature. Includes agriculture, mining, fisheries, livestock, etc.
• Companies in manufacturing or processing: Develop productive activity to physically transform some goods into others more useful for use. This area includes industrial and construction companies.
• Companies in the tertiary or services sector:
  • Commercial: Drive an increase in offering goods to consumers where and when they need them.
  • Service: Meet needs

This document outlines several fundamental business strategy frameworks crucial for analyzing market dynamics, competitive landscapes, and internal capabilities.

PESTEL Analysis: External Environmental Factors

The PESTEL analysis identifies key environmental variables that may influence a business, either positively or negatively. Choosing critical dimensions is essential for effective analysis.

• Political: Government agencies, pressure groups, lobbies, etc.
• Economic: Income, prices, inflation, debt, credit, etc.
• Sociocultural: Population, birth rate, lifestyle, consumption habits, etc.
• Technological: Innovation, technological changes.
• Ecological: Raw materials, sustainability, recycling, etc.
• Legal: Regulations related to competition, consumers, and

Cost Accounting Concepts and Objective Questions

Here are some key cost accounting concepts and objective-type questions to test your understanding:

Key Cost Accounting Concepts

1. Costing: Refers to the allocation of costs to cost centers and cost units.
2. Economic Order Quantity (EOQ): The optimal order quantity that minimizes total inventory costs.
3. Idle Time: Time spent by workers on unproductive activities.
4. Apportionment: The process of distributing overheads to various cost centers.
5. Profit under Absorption Costing: Higher when production exceeds sales compared to marginal costing.
6. Purpose of Cost Accounting: To ascertain and control costs.
7. Minimum Stock: The minimum level of inventory that must be maintained at all times.
8. Labor Turnover: Measured as

Government Economic Policies

1) Economic growth: the government will always want the economy to grow. They can encourage growth through helping private business to grow, through low business taxes or through government involvement in growth sectors such as new high tech industries.

2) Prices: the government will want to make sure that the general level of prices in the economy is effectively managed. Prices need to rise in a relatively slow and predictable way so that future contracts can be made where both sides know the value of what they pay or receive. Government policies to control inflation might include reducing spending or raising taxes when prices start to rise.

3) Income distribution: all economies are characterized by inequalities in...

Entry Modes:

Exporting: Common first step for many manufacturing firms. Later, firms may switch to another mode.

Advantages:

• Avoids the costs of establishing local manufacturing operations
• Learning

Turnkey projects: The contractor handles every detail of the project for a foreign client, including the training of operating personnel.

Advantages:

• A way of earning economic returns from the know-how required to assemble and run a technologically complex process
• Less risky compared to FDI

Disadvantages:

• No long-term interest in the foreign country
• If the firm's process technology is a source of competitive advantage, then selling this technology through a turnkey project is also selling competitive advantage to potential and/or actual competitors

Licensing:

Small Business Advantages:

• Greater focus: focus where they want; in places with greater profitability; in specific markets
• Greater cachet: greater sense of exclusiveness so they can charge more for their output, leading to higher profit margins
• Greater motivation: more prestige can motivate managers/employees
• Competitive advantage: giving a more personalized service and being more flexible
• Less competition: focusing on a niche gives limited competition
• Internal growth: slowly, steady and out of the existent operations of the business. They don't take many risks. Expands by selling more products or by increasing its product range. Usually self-financed
• External growth: quick and riskier methods. Expands by entering into an arrangement with another

BIC

Define global strategy:A global corporation views the world As a single marketplace and has as its primarygoal the creation of a standardized goods and services that will address The needs ofcustomers worldwide. The global strategy is almost the exact opposite of the multidomestic strategy. Whereas The multidomestic firms believes that its customersin every country are fundamentally different and must be approached from Thatperspective, a global corporation Assumes that customers are fundamentally the sameregardless of their nationalities

How does BIC’s matrix structure enable it to Target geographic markets more effectivelyBy using geographical area as one part of the Matrix, BIC is able to create a marketing mix that is both appropriate

Forecasting Market Methods: Long and Short Term

A company’s production schedules, planned manning levels, and financial budgeting are all related to the sales forecast. A too optimistic forecast can lead to excess stocks being accumulated, over-production and high manning levels, and over-borrowing or inefficient deployment of financial resources. A pessimistic forecast can lead to large opportunity costs and frustration among potential buyers because of late or no delivery. Firms adopt various approaches to sales forecasting, but the basic approach is to (according to T. Proctor):

Stage 1.

Make an environmental forecast regarding inflation, employment, interest rates, consumer spending and saving, and business investment.

Stage 2.

Make a forecast...

Investment & Trading

Key Concepts

Collateral: Assets a borrower uses to secure or guarantee a loan.

Shares: Certificates representing part ownership of a company.

Institutional Investors: Financial organizations that own a lot of shares.

Day Traders: People who buy and resell shares in a very short time, often just a few hours.

Raise Capital: To get money from investors with which to run a business.

Issue: To offer securities for sale to financial institutions and the public.

Market Dynamics

Bid-Offer Spread (Bulls & Bears): The difference between the buying (bid) and selling (offer) price of shares. Bulls are investors who buy shares expecting prices to rise, while bears sell shares anticipating price drops.

Market Makers: Traders who buy and...