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Title of the Paper Goes Here Student Name MBAV 6053 Economics for Managers Instructor Date ABSTRACT TABLE OF CONTENTS TABLE OF CONTENTS i INTRODUCTION 1 PART 1 ELASTICITY VS INELASTICITY OF DEMAND 2 P. Title of the Paper Goes HereStudent Name MBAV 6053 Economics for Managers InstructorDate ABSTRACT TABLE OF CONTENTSTABLE OF CONTENTSiINTRODUCTION1PART 1 ELASTICITY VS. INELASTICITY OF DEMAND2PART 2 MARGINAL ANALYSIS AND PRICING22.1. About marginal analysis and sunk costs22.2. Four ways to avoid sunk cost for better pricing decisions4PART 3 OPPORTUNITY COST TO DECISIONMAKING53.1. The importance of opportunity costs to decisionmaking53.2. How opportunity costs lead to trade7PART 4: HOW BETTER BUSINESS DECISIONS CAN BENEFIT NOT JUST THE PRODUCER BUT THE CONSUMER AND SOCIETY AS A WHOLE84.1. Deontology approach84.2. Consequentialism approach8CONCLUSION10REFERENCE11 INTRODUCTIONThroughout the history of economic theory, each school has its theoretical characteristics; it is regulated and governed by its methodology and economic history conditions. However, from the perspective of the concept of the states role in the market economy, the history of economic theory since the formation and development of capitalism until now is a debate on the market role. This article will introduce the elasticity inelasticity of demand, marginal analysis, sunk costs, and opportunity costs and discuss how business decisions can benefit society, helping readers understand the terms from the definitions and related examples. PART 1 ELASTICITY VS. INELASTICITY OF DEMAND The price elasticity of demand of a good indicates how sensitive its quantity demanded is to its price (Ed, PED). When the price of a good rises, the amount demanded falls for almost all of them, but more so for some than others. Price elasticity measures the percentage change in quantity demanded that results from a one percent price increase when all other factors remain constant. A 1 percent price increase causes a 2 percent decrease in quantity demanded when the elasticity is 2. Various elasticities evaluate how the required amount alters in response to other variables (Heister et al., 2016).For instance, a company may decide to raise prices if it learns that its PED is extremely inelastic (|Ed| 1) and that doing so wont result in a significant drop in sales. On the other hand, if a company discovers that its PED is extremely elastic (|Ed| > 1), it might want to reduce its price. Due to this, the company will be able to sell significantly more units while maintaining the same level of profit per unit.The demand for agricultural products is inelastic, consumption is relatively stable, and it is less dependent on price(Syrovátka, P., 2012). The market is sound, but supply is constantly increasing, increasing supply times more than demand. Therefore, even if the price decreases when the quantity supplied decreases, it will not be significant.PART 2 MARGINAL ANALYSIS AND PRICING2.1. About marginal analysis and sunk costsThe revenue growth from selling one more unit of output is known as marginal revenue(MR). Although marginal revenue can remain constant over a certain output level, the law of diminishing returns states that as the output level rises, marginal revenue will eventually begin to decline (SanzSanz, J., 2019).Example: A business sells 100 products, with total revenue of 500. The company increases sales volume to 101 products for total revenue of 505. Thus, the marginal revenue of the 101st product is 5.MR = ΔTRΔQThe total expenses needed to produce one additional good are calculated as the marginal cost (MC). As a result, it can be measured by changes in the costs incurred for each other unit. Change in Total Expenses Change in Units Produced = Marginal Cost.(MC = ΔTCΔQ = ΔTVCΔQ).Example: A firm is producing 5000 CDs at a total cost of 20,000. If the total cost of producing 5001 CDs is 20,001, then the marginal cost of having the 5001st CD is 1. A marginal analysis of the costs and benefits is required when a manufacturer wants to expand its business, whether by adding new product lines or boosting the output of goods from the current product line. The price of additional manufacturing equipment, any extra staff, needed to support an increase in output, large manufacturing or storage facilities for finished products, and the price of additional raw materials required to produce the goods are just a few of the costs that need to be looked into.A sunk cost is one that has already occurred and cannot be recovered (WANG Zeng, 2019). Sunk costs have no connection to any event and shouldnt be taken into account when choosing an investment or task. When making such decisions, only relevant costs (costs associated with a particular finding that will change as a result of that decision) should be taken into account.Sunk costs can be recognized and taken into account when determining pricing by a company to reduce marginal costs and maximize the return on an investment even though they have no impact on marginal analysis. Marginal analysis uses opportunity cost to avoid the sunk cost fallacy and make wise decisions.2.2. Four ways to avoid sunk cost for better pricing decisionsBuild creative tension
Title of the Paper Goes Here Student Name MBAV 6053 Economics for Managers Instructor Date ABSTRACT TABLE OF CONTENTS TABLE OF CONTENTS .i INTRODUCTION PART ELASTICITY VS INELASTICITY OF DEMAND .2 PART MARGINAL ANALYSIS AND PRICING 2.1 About marginal analysis and sunk costs 2.2 Four ways to avoid sunk cost for better pricing decisions .4 PART OPPORTUNITY COST TO DECISION-MAKING 3.1 The importance of opportunity costs to decision-making 3.2 How opportunity costs lead to trade PART 4: HOW BETTER BUSINESS DECISIONS CAN BENEFIT NOT JUST THE PRODUCER BUT THE CONSUMER AND SOCIETY AS A WHOLE 4.1 Deontology approach 4.2 Consequentialism approach CONCLUSION 10 REFERENCE 11 i INTRODUCTION Throughout the history of economic theory, each school has its theoretical characteristics; it is regulated and governed by its methodology and economic history conditions However, from the perspective of the concept of the state's role in the market economy, the history of economic theory since the formation and development of capitalism until now is a debate on the market role This article will introduce the elasticity/ inelasticity of demand, marginal analysis, sunk costs, and opportunity costs and discuss how business decisions can benefit society, helping readers understand the terms from the definitions and related examples PART ELASTICITY VS INELASTICITY OF DEMAND The price elasticity of demand of a good indicates how sensitive its quantity demanded is to its price (Ed, PED) When the price of a good rises, the amount demanded falls for almost all of them, but more so for some than others Price elasticity measures the percentage change in quantity demanded that results from a one percent price increase when all other factors remain constant A percent price increase causes a percent decrease in quantity demanded when the elasticity is Various elasticities evaluate how the required amount alters in response to other variables (Heister et al., 2016) For instance, a company may decide to raise prices if it learns that its PED is extremely inelastic (|Ed| 1) and that doing so won't result in a significant drop in sales On the other hand, if a company discovers that its PED is extremely elastic (|Ed| > 1), it might want to reduce its price Due to this, the company will be able to sell significantly more units while maintaining the same level of profit per unit The demand for agricultural products is inelastic, consumption is relatively stable, and it is less dependent on price(Syrovátka, P., 2012) The market is sound, but supply is constantly increasing, increasing supply times more than demand Therefore, even if the price decreases when the quantity supplied decreases, it will not be significant PART MARGINAL ANALYSIS AND PRICING 2.1 About marginal analysis and sunk costs The revenue growth from selling one more unit of output is known as marginal revenue(MR) Although marginal revenue can remain constant over a certain output level, the law of diminishing returns states that as the output level rises, marginal revenue will eventually begin to decline (Sanz-Sanz, J., 2019) Example: A business sells 100 products, with total revenue of $500 The company increases sales volume to 101 products for total revenue of $505 Thus, the marginal revenue of the 101st product is $5 MR = ΔTR/ΔQ The total expenses needed to produce one additional good are calculated as the marginal cost (MC) As a result, it can be measured by changes in the costs incurred for each other unit Change in Total Expenses / Change in Units Produced = Marginal Cost (MC = ΔTC/ΔQ = ΔTVC/ΔQ) Example: A firm is producing 5000 CDs at a total cost of $20,000 If the total cost of producing 5001 CDs is $20,001, then the marginal cost of having the 5001st CD is $1 A marginal analysis of the costs and benefits is required when a manufacturer wants to expand its business, whether by adding new product lines or boosting the output of goods from the current product line The price of additional manufacturing equipment, any extra staff, needed to support an increase in output, large manufacturing or storage facilities for finished products, and the price of additional raw materials required to produce the goods are just a few of the costs that need to be looked into A sunk cost is one that has already occurred and cannot be recovered (WANG & Zeng, 2019) Sunk costs have no connection to any event and shouldn't be taken into account when choosing an investment or task When making such decisions, only relevant costs (costs associated with a particular finding that will change as a result of that decision) should be taken into account Sunk costs can be recognized and taken into account when determining pricing by a company to reduce marginal costs and maximize the return on an investment even though they have no impact on marginal analysis Marginal analysis uses opportunity cost to avoid the sunk cost fallacy and make wise decisions 2.2 Four ways to avoid sunk cost for better pricing decisions Build creative tension Some companies strive for total organizational synergy Others, on the other hand, prefer to create "creative tension." Finances must ensure that the project stays within its budget The project's creative must guarantee its high caliber A beautiful but prohibitively expensive website could be the end result if Creative got their way However, the final product might be too lean if Finance had its way The company can avoid the sunk cost fallacy by encouraging creative tension and establishing an internal system of checks and balances Track the investments and future opportunity costs When making business decisions, many people only consider the monetary costs and benefits of staying the course However, the opportunity costs must also be considered By choosing to follow the original course, people forgo alternative uses of their resources, including time, money, and people In order to know how much money and time they have spent, managers should keep track of their investments Maintaining a schedule and keeping track of the time spent on each project are excellent ways to achieve this Have an open discussion about all the alternatives that may be sacrificed to complete a sinking project The outcomes can be eye-opening Do not buy into blind bravado Be ready for the inevitable discussion about cutting losses as a leader Consider it as shifting those precious resources—losing more of them would be the ultimate defeat—toward more fruitful endeavors rather than conceding defeat Let go of personal attachments to the project Shutting down projects that have consumed so much time and funds is never easy, especially when it has to be informed to the rest of the teammates The stronger the emotional attachment to a project, the more difficult it is to accept that it will fail It is more likely to move forward if a person's performance review or job depends on the success of a project or if success is necessary to make a point No one wants to be a leader who launches failed initiatives; therefore, we may choose to ignore the clear signs of trouble PART OPPORTUNITY COST TO DECISION-MAKING 3.1 The importance of opportunity costs to decision-making About opportunity cost Opportunity costs are the potential benefits a business, an individual, or investor foregoes when deciding one option over another(Williams, J., 2015) Because opportunity costs are by definition invisible, they are easily overlooked Understanding the potential missed opportunities when a company or individual chooses one investment over the other allows for more informed decisions Formula and Calculation of Opportunity Cost For example, if an Investor has 100 million of idle money and wants to make more, there are currently two popular, profitable options First, choose to invest in the stock market, earning quick profits with high returns and certain risks Second, conduct a bank savings account with an interest rate of 7%/year Enjoy regular profits at monthly interest rates in a stable, low-risk way If investors choose a savings deposit plan, they will enjoy a stable interest rate of 7%/year Then the opportunity cost he has traded here is the profit earned from the stock market, which can be up to 30% interest per year Using opportunity cost is a great method for calculating the advantages and disadvantages of both options because it gives each one a value Anyone can make more sensible decisions that will benefit them if they are aware of the true costs associated with each course of action Here are some of the advantages of understanding opportunity costs: Awareness of missed opportunities The opportunity cost considers that when people make a decision, they must forego other options This allows them to make more economically sound decisions that maximize their resources Some contend that opportunity costs are not "real" costs because they not directly appear on a company's financial statements Due to the fact that it is a comparatively abstract idea, many businesses neglect to take it into account when making daily decisions In the long term, the opportunity cost can significantly impact the outcomes of individuals or businesses Knowing relative prices Another significant advantage of considering opportunity cost is comparing each option's relative prices and benefits Compare the total value of each option and choose the one that provides the best deal Help set priorities The more cost-effective the commercial benefit of an enterprise opportunity is, the higher it ranks on the priority scale Businesses can determine the most critical and profitable alternative based on the circumstances and business needs For example, if the company determines that the opportunity cost of a choice is higher than what the business gains from its original proposal, it can change its opinion and promote the option Businesses use this decisionmaking method to ensure that their decision's benefits outweigh an alternative's costs 3.2 How opportunity costs lead to trade Trade is a result of comparative advantage The terms of trade for exchange under which mutually beneficial work can occur are determined by comparative advantage and opportunity costs (Shi, J., 2020) Optimizing for opportunity cost, in other words, leads to acting for comparative advantage, which leads to trade Moreover, trade is a fundamental characteristic of a healthy, active economy PART 4: HOW BETTER BUSINESS DECISIONS CAN BENEFIT NOT JUST THE PRODUCER BUT THE CONSUMER AND SOCIETY AS A WHOLE 4.1 Deontology approach Ethics is the investigation of morality and how to practice perfect character formation and behavior constantly Deontology is a method of judging the morality of others using a set of rules Deontology is the use of rules to judge the morality and actions of others People initially learn the rules within the family structure Philosophers have contributed to a better understanding of ethics and rulemaking C.D Broad [3] described the "five types of ethical theory" in his book of the same name in 1930 It contained the notion that abiding by moral and ethical standards is required and that every choice has an impact This is the origin of the word "consequentialism." Therefore, if morality and duty exist, there is always an evaluation of those actions that follow them Consequentialism underpins traditional deontology and ethical theories They are concerned with doing well for the most significant number of people This should be the rule that all professionals follow Because a positive mindset can influence an entire organization, business owners, CEOs, and board members ought to possess this ethical framework in addition to individuals 4.2 Consequentialism approach Consequentialism is an ethical theory that determines whether something is right or wrong based on its consequences(Peterson, M., 2012) For example, most people agree that lying is wrong However, consequentialism says it is suitable if telling a lie saves someone's life Utilitarianism and Hedonism are two examples of consequentialism Utilitarianism evaluates consequences in terms of the "greatest good for the greatest number." On the other hand, Hedonism believes that something is "good" if it produces pleasure or avoids pain Consequentialism is sometimes criticized since it can be difficult, if not impossible, to predict the outcome of an action in advance No one can forecast the future with certainty Furthermore, consequentialism can result in objectionable choices even when the consequences are objectively good in certain situations For example, at a local market, five specific breed puppies are sold for $100 each Some market participants are willing to pay the market price Barbara wants to pay $150, Christine wants to pay $120, and Dan wants to pay the market price of $1000 As a result, Christine has a $20 surplus, Dan is the marginal buyer and has no consumer surplus in this transaction, and Barbara has a $50 consumer surplus The combined consumer surpluses of Barbara and Christine would equal the market surplus, which would be $70 CONCLUSION Microeconomics is the study of how people and businesses decide how to use their limited resources most effectively Its principles can be helpfully used when making decisions in daily life, such as when you rent an apartment After all, the majority of people only have a finite amount of time and money They must choose carefully how to use their limited resources in order to maximize personal satisfaction because they cannot afford to buy or everything they want A business similarly has a limited amount of time and money Businesses also make choices that will benefit the company the most, which could mean maximizing profit 10 REFERENCE Lawlor, R (2009) Intricate Ethics: Rights, Responsibilities, and Permissible Harm, by F M Kamm Mind, 118(472), 114-115 https://doi.org/10.1093/mind/fzp123 Muir, C., & Jackson, C (2013) Getting to Right: How Do Managers Make Good Decisions about Customers? Academy Of Management Perspectives, 27(4), 1-3 https://doi.org/10.5465/amp.2013.0124 "Price elasticity of demand | Economics Online" 2020-01-14 Retrieved 2021-04-14 Heister, T., Hagist, C., & Kaier, K (2016) Resistance Elasticity of Antibiotic Demand in Intensive Care Health Economics, 26(7), 892-909 https://doi.org/10.1002/hec.3363 Syrovátka, P (2012) Income elasticity of demand within individual consumer groups and the level of income elasticity of the entire market demand Agricultural Economics (Zemědělská Ekonomika), 52(No 9), 412-417 https://doi.org/10.17221/5044-agricecon Sanz-Sanz, J (2019) The relative revenue power of the marginal tax rates in personal income tax schedules: the Revenue Equivalent Marginal Rate Increase (REMI) Applied Economics Letters, 27(13), 1081-1086 https://doi.org/10.1080/13504851.2019.1661348 WANG, C., & Zeng, X (2019) Transferable Sunk Cost Hypothesis: A New Analysis of Sunk Cost Fallacy SSRN Electronic Journal https://doi.org/10.2139/ssrn.3350804 Williams, J (2015) Commuting with Lost Housing Services as the Opportunity Cost Real Estate Economics, 44(1), 155-197 https://doi.org/10.1111/1540-6229.12091 11 Shi, J (2020) MACRO-ECONOMIC FACTORS OF SINO-US TRADE IMBALANCET International Trade And Trade Policy, (3), 39-57 https://doi.org/10.21686/2410-7395-2020-3-39-57 10.Broad, C., 2008 Five Types of Ethical Theory Routledge, pp.13-14 11.Peterson, M (2012) CONSEQUENTIALISM Ratio, MULTI-DIMENSIONAL 25(2), 177-194 https://doi.org/10.1111/j.1467-9329.2012.00530.x 12 ... TABLE OF CONTENTS TABLE OF CONTENTS .i INTRODUCTION PART ELASTICITY VS INELASTICITY OF DEMAND .2 PART MARGINAL ANALYSIS AND PRICING 2.1 About marginal analysis and sunk costs... introduce the elasticity/ inelasticity of demand, marginal analysis, sunk costs, and opportunity costs and discuss how business decisions can benefit society, helping readers understand the terms... terms from the definitions and related examples PART ELASTICITY VS INELASTICITY OF DEMAND The price elasticity of demand of a good indicates how sensitive its quantity demanded is to its price (Ed,