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Element of Management

Triangle Management

Figure above indicates three levels of business activities or processes carried out in operating a company. These three levels were first described by Robert B. Antony in 1965 and are still used to portray the fuctioning of a business enterprise.

The first level, Operational Control indicates processes performed to control the basic product or services produced by the company in a manufacturing company. In a manufacturing company, example of operational control are the processes that move a product from one assembly point to the next and the actions that take place at each assembly point. In a bank, operational control includes the physical sorting, recording, and posting of check. Continue reading


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Price Discrimination, why?

When you were young, did you ever order from the children’s menu in a restaurant? When a family with small children goes to a restaurant, they are often given a children’s menu in addition to the regular menu. If they order two similar items, one from each menu, they will find that the item ordered from the children’s menu will be a bit smaller, but its price will be much smaller. In fact, it would often be worthwhile for the entire family to order from the children’s menu, but they cannot. Restaurants usually only allow children to order from it.1

Why do restaurants use children’s menus? Economists doubt that restaurant owners have a special love for children; they suspect that the owners find offering children’s menus to be profitable. It can be profitable if adults who come to restaurants with children are, on the average, more sensitive to prices on menus than adults who come to restaurants without children. Children often do not appreciate restaurant food and service, and often waste a large part of their food. Parents know this and do not want to pay a lot for their child’s meal. If restaurants treat children like adults, the restaurants may lose customers as families switch to fast-food restaurants. If this explanation is correct, then restaurants price discriminate.

A seller price discriminates when it charges different prices to different buyers. The ideal form of price discrimination, from the seller’s point of view, is to charge each buyer the maximum that the buyer is willing to pay. If the seller in our monopoly example could do this, it could charge the first buyer $7.01, the second buyer $6.51, etc. In this case the marginal revenue curve becomes identical with the demand curve. The seller will sell the economically efficient amount, it would capture the entire consumers’ surplus, and it would substantially increase profits.

Every seller would price discriminate if there were not two major obstacles standing in the way. First, the seller must be able to distinguish between those buyers who are willing to pay a high price from those who are not. Second, there must be substantial difficulty for a low-price buyer to resell to those willing to buy at a high price.3

Because price discrimination is potentially profitable, businesses have found many ways to do it. Theaters often charge younger customers less than adults. Doctors sometimes charge the rich or insured patient more for services than they charge the poor or uninsured. Grocery stores have a lower price for people who bother to check the newspaper and clip coupons. Some companies, such as firms selling alcoholic beverages, produce similar products but try to promote one as a prestige brand with a much higher price. Electric utilities usually charge lower rates to people who use a lot of electricity (and thus probably have electric stoves and water heaters) than they do to those who use only a little electricity (and who probably have gas stoves and water heaters). Banks offer special interest rates on Certificates of Deposit (CDs) that will not be obtained when one lets a CD roll over. People who are more sensitive to interest rates will take the time and effort to personally renew each maturing CD.

To the extent that businesses find ways to price discriminate, they eliminate the triangle of welfare loss and approach the economically efficient amount of production. Thus, the mere existence of monopoly does not prove there is economic inefficiency.

taken from :  http://ingrimayne.com/econ


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What’s the Clolour of Money?

Money TreeIt’s sound like a silly question – “What’s money?”. Charles Dickens in his book ‘Dombey and Son’ that tell about the conversation between father (Paul Dombey and his son). Mr. Dombey in the book tells his son that money is composed of coins and banknotes. It is a sensible answer, but little Paul is not satisfied and wants to know what money really is.
This is a difficult question. Money has been compared to happiness, a bridge, and time (‘time is money’). Money can be compared to anything and everything because it can be translated into anything or everything.Money can move mountains, cause people to walk on the moon or cure the sick. Money appears green in one country and blue in another. There is a real money and there is a fake money. Money comes in all colors and cab be found everywhere.
According to what we know money has been in existence for a long time. In ancient Greece the coins issued were made of a metal known as electrum. The value of the coin was the same as its weight; the bigger the coin the more valuable it was.
Other societies developed different currencies. In some places the cowrie acted as money, in others it was the cow. The Roman soldiers who were living far away from Rome were paid in salt because salt was not commonly available. The English word ‘salary’ comes from the custom of making payments in salt.
However, the Greek rules quickly realized that the value of a coin could be changed. This was not done by adding or substracting from its weight, but by stamping new words and pictures on the coin and announcing that it had a new value. Coins have been losing their value ever since.

The next big change in Western money came with the introduction of paper money. People were very slow to accept that you could make money from something as weak as paper. When Marco Polo told Europe that the Grand Khan in China issued paper money, people said he was telling lies. In the nineteenth century workers refused to be paid in blanknotes and shopkeepers refused to accept them as payment for goods and commodities.
However, the times change. In today’s global economy, it would be difficult to find anybody who would refuse the offer of a dollar banknote. Neither does anybody seem to mind that most of the world’s money is now in the form of electronic units on computers screens. It is strange that money which began as a metal called electrum should end up as electricity.

Money works because, as members of society, we all agree that it should work; outside of society money does not make sense. Imagines if you were alone on an island and you saw two boxes in the sea. One box contains millions of dollars, the other box contains various tools such as a saw, knives, etc., and agricultural seeds. You anly have time to remove one box because the tide is carrying them away. Which box would you hold on to?


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Nash Equilibrium, Prisoner’s Dilemma, Tit-for-Tat: to Manage Competitors

When we want to buy a car we only usually get a price on a certain minimum threshold. Whereas with these prices, the dealers have gain a profit. Although we want to buy two cars at once, the dealer still will not sell below the price limit. But sometimes we are asked to meet directly with the managers to speak privately. So why such things be can happened ?…..

Nash equilibrium is a situation where each player chooses its optimal strategy, for dealing with strategies that have been done by other players.
But sometimes there is a cheating and did not follow the agreement so that the outcomes tend to be inferior even worse than the possibilities.
Once upon a time I went to Glodok  (Electronic Saler Centre in Jakarta) intend to look around and if there is a match price to buy a notebook. After much haggling the seller would not sell below the price even though I want to buy  lnotebook  for more than two pieces. Finally the salesman took me to the manager to speak privately. The manager finally put a price below the standard but the price written on the receipt is higher than the agreed price. The manager asked for me to keep  secret of this and if anyone asks the price, the answer is as indicated in the receipts.

Prisoner dilemma illustrates that the agreement of two economic actors is very difficult to continuously even though the agreement is beneficial to both the perpetrators. This occurs because of an agreement means that economic actors commit to choosing a particular strategy in a game. Thus, although the game has not yet begun, each economic actor to understand the strategy of his opponent. Each economic actor assumes that his opponent’s strategy as a key factor. As a result, each potential economic actors to choose a different strategy than the strategy agreement, if the violation is more profitable than follow the consensus strategy.
To prevent cheating when there is repetition in the prisoners dilemma scenario, the best strategy that can be achieved is a tit-for-tat.
In order for the strategy tit-for-tat can function properly, several conditions must be met. First, it needs a stable set of players. If players are often switching back and forth, growing a small possibility of cooperative behavior. Second, the number of players have little (if not, it is very difficult to monitor what is being done by each player). Third, it is assumed that any company can rapidly detect (and are willing and able to respond quickly) cheating by other companies. Cheating is not detected in a long time will encourage more cheating. Fourth, demand and cost conditions should be relatively stable (it is always changing, it is very difficult to define where the cooperative behavior and what is not). Fifth, we must assume that the game continues again and again without limit, or in a very large number of repetitions and uncertain.

In everyday life, especially in the business world, the rules of play tit-for-tat is able to minimize cheating. It can be described as follows: Do what to you by your opponent. That is, you start by cooperating and will continue to work together during your opponent also cooperated. If he betrayed, then you also betray him again. If later he was cooperating, then you also work together. This strategy is adequate reply to each other in order to prevent non-cooperative behavior, but forgiving enough to allow the development pattern of cooperation is beneficial.
However, many phenomena around us are still cheating occurred. This is due to inconsistent implementation of this strategy is applied, where the punishment is not carried out properly. Do unto Others as you would have Them do onto you.

Source: “Managerial Economics” by Dominick Salvatore