Chapter 1 Lecture Notes

1. Introductions
a. Name
b. Affiliation
c. Life Goal: Why are you pursuing an MBA

2. Basics
a. Economics: Show how resource scarcity is related to choice and cost
b. Economic Profit: Motivates entry, redirects the nation’s resources, created by entrepreneurs or by sudden events
c. Market Interactions
i. Many mistakenly think of competition as buyer vs seller
1. Trade is mutually beneficial
2. There is a surplus to split
3. Buyer-seller competition determines split of buyer seller trade surplus
a. Effect of Unions ii. Real competition is buyer vs buyer and seller vs seller
1. This is important for economic efficiency and for promoting technical change
d. Marginal Decision Making (Getting the intuition is the valuable thing)
i. Cost-Benefit Analysis
1.
2. Total Benefit: , depends upon the quantity of some input
a. Marginal Benefit: , inputs are productive
b. Declining Marginal Benefit: , law of diminishing returns
3. Total Cost: C, depends upon the quantity of some input
a. Marginal Cost: , inputs are costly
b. Declining Marginal Benefit: , law of increasing costs
4. Net Benefit
a. Net benefit of inactivity:
b. Marginal Net Benefit
c. Useless Activity:
d. Typical useful activity: , which implies
e. Optimal Level of Activity: , which implies
5. Show Cost-Benefit Analysis Diagrammatically

ii. Hiring Decision Example
1. Constant wage
2. Constant price for product
3. Marginal Product
4. Comparing Marginal Revenue Product with Wage
5. Law of Diminishing Returns iii. Other examples
1. How much to study?
2. How much to work out?
3. How much time to spend cleaning your house?
4. How much money to spend cleaning Lake Tahoe?
5. Can we be too safe?
6. Lesson: Virtue lies between extremes---Aristotle
e. Time Value of Money
i. Show where the comes from ii. Cost of Waiting: FV-PV iii. iv.
v. : Discount rate i that makes the present value equal zero. vi. Chapter 1 Problems

CH1 Problem 1: (a) Identify a personal decision that involves “how much to spend” or “how