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Introduction

Faculty of Business and Economics (FBE), The IIPM, New Delhi. Fundamentals of Economics. ?The Age of Chivalry is gone; that of sophisters, economists, and calculators has succeeded. "---Edmund Burke. Faculty of Business and Economics (FBE), The IIPM, New Delhi. HOW PEOPLE MAKE DECISIONS?. . Study of economics starts with 4 principles of individual decision making:People face tradeoffsThe cost of something is what you give up to get it.Rational people think at the margin.People respond to incentives..

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Introduction

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    1. Introduction Principles of Economics

    2. Faculty of Business and Economics (FBE), The IIPM, New Delhi Fundamentals of Economics The Age of Chivalry is gone; that of sophisters, economists, and calculators has succeeded. ---Edmund Burke

    3. Faculty of Business and Economics (FBE), The IIPM, New Delhi HOW PEOPLE MAKE DECISIONS?

    4. Faculty of Business and Economics (FBE), The IIPM, New Delhi # 1: People Face Tradeoffs

    5. Faculty of Business and Economics (FBE), The IIPM, New Delhi People Face Tradeoffs

    6. Faculty of Business and Economics (FBE), The IIPM, New Delhi # 2: The Cost of Something is what You Give Up

    7. Faculty of Business and Economics (FBE), The IIPM, New Delhi # 3: Rational People Think at the Margin

    8. Faculty of Business and Economics (FBE), The IIPM, New Delhi

    9. Faculty of Business and Economics (FBE), The IIPM, New Delhi Principles of Economics Consider leisure, often defined as time which one can spend as one pleases. Leisure brings out personal eccentricities. Suppose that, after satisfying all your obligations, you have 3 hours a day of free time and can devote it to gardening, laying bricks, or writing history. What is the best way to allocate your time? Lets ignore the possibility that time spent on some of these activities might be an investment that will enhance your earning power in the future. Rather, assume that these are all pure consumption or utility-yielding pursuits.

    10. Faculty of Business and Economics (FBE), The IIPM, New Delhi Principles of Economics Consider yourself the marketing President of a multi-market seller like TCS which sells software services in various foreign markets. The marginal revenues, marked in US $ billion (through sale of software) of TCS are mentioned in the format. Work out the revenue maximizing combination/allocation/behaviour, wherein TCS plans to have presence in all these markets and is guided by that assumption that marginal revenue is a monotonically decreasing function of selling.

    11. Faculty of Business and Economics (FBE), The IIPM, New Delhi Equi-Marginalism (Relative Activity Level Principle) Multi-market Seller (MR1 = MR2 = MR3 = MR4 = MRN) Multi-plant monopolist (MC1 = MC2 = MC3 = MC4 = MCN) Multi-factor employer (MP1 = MP2 = MP3 = MP4 = MPN) Multi-product firm (Mp1 = Mp2 = Mp3 = Mp4 = MpN) Multi-commodity consumer (MU1 = MU2 = MU3 = MU4 = MUN)

    12. Faculty of Business and Economics (FBE), The IIPM, New Delhi Principles of Economics Tom Cruise's savings consist of $10,000 in a savings account that yields 2% a year interest and another $10,000 in a money market fund that pays interest of 5% a year. Tom Cruise has just received a gift of $10,000 from his mother. His bank pays 4% interest on savings accounts with a minimum deposit of $20,000.The money market fund pays 5% interest on investments up to $100,000.

    13. Faculty of Business and Economics (FBE), The IIPM, New Delhi Principles of Economics Calculate the average interest rate (= dollar amount of interest divided by amount of investment) from the savings account if Tom Cruise deposits the additional $10,000 in the savings account and qualifies for the higher interest rate. Calculate the average interest rate if Tom Cruise deposits the additional $10,000 in the money market fund. Calculate the marginal interest rate (= increase in dollar amount of interest divided by additional investment) from the savings account if Tom Cruise deposits the additional $10,000 in the savings account. Calculate the marginal interest rate if Tom Cruise deposits the additional $10,000 in the money market fund. From the viewpoint of maximizing his total interest income, where should Tom Cruise deposit the additional money?

    14. Faculty of Business and Economics (FBE), The IIPM, New Delhi Boundaries of Firm General Motors divested Delphi Automotive Systems, which manufactures auto components, systems and modules Daimler Chrysler took over the import and wholesale distribution of Benz cars in Asia Pacific ISP AOL merged with Time Warner, a producer of films and music, and provider of cable television services

    15. Faculty of Business and Economics (FBE), The IIPM, New Delhi Organizational Boundaries There are two sets of boundaries Vertical Boundaries: delineate activities closer to or further from the end user Horizontal Boundaries: define the scale and scope of an firms operations

    16. Faculty of Business and Economics (FBE), The IIPM, New Delhi Summary

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