Economics of Business DecisionsRevision

Assessment 100% final exam.

2 hour-paper.

Answer Question 1 in Section A (40%) and choose TWO questions out of six in Section B (60%).

Section A short questions. Nature: Define and explain.

Section B long essay. Nature: Analysis and discussion.

Lecture 1Introduction to Business Decisions and objectives.What are the definition of a firm (objectives of firm) according to Neo-classical Economics?Profit-MaximizationWhat are the objectives/motivations of the firm according to Managerial theories? Sales Maximisation (Baumol)Growth maximisation (Marris)Managerial utility (Williamson)

Lecture 2What is transaction costs?

External transaction cost (transactions with outside markets) --- additional costs to the usual cost of production?

Issues pertaining to contract costs, hold-ups and asset specificity.

How do firms deal with transaction costs?

Issues of mode of organising production?

Lecture 3Transfer Pricing what is it?

Implication will affect bigger firms with many divisions?

Undermine vertical integration strategies?

Lecture 4Agency costs --- principal-agent problem framework in organisations..

Why incentives and motivations needed?

What about monitoring?

Incentives to align the objectives of employees and employers in organisations ---

Incentive tools like Pay for performance, promotion etc..

Lecture 5The Behavioral Theory of the Firm

Different from Neo-classical theory of the firm

Satisficing instead of maximising. What does it mean?

Issues of routines, bounded rationality, conflicts in organisations, multiple goals.

Lecture 6Resource-based theory of firm.

Issues of sustaining competitive advantage by firms. How? Key & Valuable resources.

Firms are not homogenous instead, they are heterogeneous each are endowed with different resources

Possession of key and rare resources the main reason why some firms always ahead!

Value capturing/sustaining competitive advantage. How?

Lecture 7Boundaries of the firm 1--- vertical integration

Vertical expansion vs contractions (outsourcing)

Forward and backward integration.

Why extend ones vertical boundary? Efficiency concerns, strategic moves, agency theory explanation, resource-based arguments? Others?

Lecture 8Boundaries of the firm 2 --- horizontal integration.

Scale, scope and learning economics.

Related diversification also applicable.

Why extend ones horizontal boundary? Efficiency concerns, strategic moves, managerial motives (e.g. Baumols sales maximisation or Williamsons utility max. model?), resource-based arguments? Others?

Lecture 9Boundaries of the firm 3 diversification.

Related (economies of scope) better than unrelated (pooling of risk)?

A strategy that is generally unfavourable or otherwise? Empirical evidence on this?

Why diversify? Efficiency concerns, strategic moves, managerial motives (e.g. Marris growth max. theory?), resource-based arguments? Others?

Lecture 10Boundaries of the firm issue --- firms can pursue changes through M & As.

Can be horizontal, vertical or conglomerate (diversification) expansions.

Efficiency gains versus synergies (firm specific?) versus environmental factors.

Firms also look at divestment strategies --- reducing ones boundaries. Motivations for this?

Readings See module outline.

Textbooks

Lecture notes

Articles

Good luck!