for Decision
Making
Dr. Jorge Mendoza
Session Content
Basics of Microeconomics: Method and
scope
How competitive markets work: supply
and demand
The theory of demand
Cost functions and the theory of
production
Demand estimation (time permitting)
What is Microeconomics?
Seeks to explain the behavior and activities of specific
economic units individuals, households, firms,
industries, and resouce owners.
Seeks to explain and predict such things as:
1.The prices and outputs of particular firms and and
industries,
2.The choices of consumers in buying goods and services,
3.The drivers of technological change, production
efficiency and costs,
4.Competitive behavior and government regulation and
5.The adjustments of markets to new conditions.
What is a theory?
A theory is a statement predicting which actions will lead
to what results and why. Every action that managers
take, and every plan they formulate, is based on
some theory in the back of their minds that makes
them expect the actions they contemplate will lead
to the results they envision. Butmost managers
don't realize that they are voracious users of theory.
Good theories are valuable in at least two ways.
First, they help us make predictions Second, sound
theories help us interpret the present, to
understand what is happening and why. Theories
help us sort the signals that portend important
changes in the future from the noise that has no
strategic meaning.
Clayton M. Christensen & Michael A. Raynor. Why Hard-Nosed Executives Should Care
about Management Theory. Harvard Business Review, September, 2003.
Chapter 1: Introduction
Determinants of architecture
Design Principle:
form follows function.
Changes in the business
environment will affect
business strategies and,
hence, the firms
architecture: Its decision
making authority,
performance evaluation,
and incentivecompensation systems.
Organizational Architecture
Systematic approach to identifying and
correcting organizational problems.
Three critical aspects of organization: the
architecture
Assignment of decision rights
Methods of rewarding individuals
Performance evaluation of individuals and
business units
Fundamental concepts
People act in their own self interest
Information is asymmetric
Sells labor
Buys product
Household
division of
labor
Buys labor
Sells product
Hierarchical
decision
making