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    Managerial Economics: MBAFT 6103

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    Siddharth Verma
    The document discusses four topics: economies of scope, learning curves, sales maximization versus profit maximization. It defines economies of scope as the cost savings when two goods are produced jointly by a single firm. It presents the learning curve concept that average production costs decrease with cumulative output. The document also notes that large firms may choose to maximize total revenue instead of profits, resulting in higher output but lower profits.

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    Managerial Economics: MBAFT 6103

    Uploaded by

    Siddharth Verma
    16 views13 pages
    The document discusses four topics: economies of scope, learning curves, sales maximization versus profit maximization. It defines economies of scope as the cost savings when two goods are produced jointly by a single firm. It presents the learning curve concept that average production costs decrease with cumulative output. The document also notes that large firms may choose to maximize total revenue instead of profits, resulting in higher output but lower profits.

    Original Description:

    Managerial economics for noobs

    Original Title

    Lecture 11 Special

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    The document discusses four topics: economies of scope, learning curves, sales maximization versus profit maximization. It defines economies of scope as the cost savings when two goods are produced jointly by a single firm. It presents the learning curve concept that average production costs decrease with cumulative output. The document also notes that large firms may choose to maximize total revenue instead of profits, resulting in higher output but lower profits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    16 views13 pages

    Managerial Economics: MBAFT 6103

    Uploaded by

    Siddharth Verma
    The document discusses four topics: economies of scope, learning curves, sales maximization versus profit maximization. It defines economies of scope as the cost savings when two goods are produced jointly by a single firm. It presents the learning curve concept that average production costs decrease with cumulative output. The document also notes that large firms may choose to maximize total revenue instead of profits, resulting in higher output but lower profits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 13

    Managerial  

    Economics
    MBAFT 6103

    1
    Today
    Four Special Topics
    •  Economies of Scope
    •  Learning Curve
    •  Sales Maximization versus Profit Maximization

    2
    Economies  of  Scope

    If the total cost of producing two goods X and Y by a
    single firm is less that the cost of producing X and Y
    separately, then the production of X and Y is
    characterized by economies of scope

    i.e., economies of scope exists if


    TC(X,Y) < TC(X) + TC(Y),
    Where TC(X,Y) is the total cost of jointly producing X
    and Y.

    3
    Economies  of  Scope

    Measured by the ratio

    (TC(X) + TC(Y) – T(X,Y))/(TC(X) + TC(Y))

    4
    Economies  of  Scope

    Measured by the ratio

    (TC(X) + TC(Y) – T(X,Y))/(TC(X) + TC(Y))

    Examples?

    5
    Economies  of  Scope

    Arises because of complementarity

    6
    Learning  Curve

    Learning curve for a business tells us about the
    relationship that exists between average cost of
    production and the cumulative quantity produced by
    that business.
    Learning  Curve

    Average  Cost

    Cumulative  Output
    Learning  Curve

    •  Can also be expressed as man-hour per unit of
    production as a function of cumulative output
    yx = ax-b
    B where

    x = cumulative production
    yx = man-hrs. to produce xth unit
    a = hrs. to produce first unit
    b = a parameter related to the percentage
    associated with the Learning Curve
    Learning  Curve

    Why do we observe this?


    Learning  Curve

    •  Innovation and improvements in operations

    •  Standardization

    •  Product Re-design

    •  Increased labor efficiency

    •  Learning from shared experience

    Read both topics from Salvatore.


    Sales  Maximization

    •  Baumol’s model
    •  Applicable for big firms
    •  Maximize total revenue instead of total profit

    12
    Sales  Maximization

    •  Sometimes large firms do sales (revenue)
    maximization instead of profit maximization
    •  Outcome? Sales maximization means more output
    and higher revenue.
    •  Example: P = 10 – 0.1Q. TC = 70 + 2Q
    Profit maximization gives, Q =40, P=6, π = 90
    Revenue max gives, Q =50, P=5, π = 80
    •  Why do Sales Maximization instead of profit
    maximization?

    13

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