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Extent Decisions and Investment Decisions
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BEE1034 Week 2Identifying Business Opportunities,
Understanding Costs and Benefits
Slides based on material from Managerial Economics: A Problem Solving Approach
Luke M. Froeb, luke.froeb@owen.vanderbilt.edu
Brian T. McCann, brian.mccann@owen.vanderbilt.edu
Website, managerialecon.com
© 2010 Cengage Learning and University of Exeter Business School. All Rights Reserved. May not be copied,
scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for classroom use.
, Introduction
• Our goal this week is to learn how to find and
profitably exploit business opportunities.
• We will first develop an understanding of how
value and wealth are created.
• Next we will introduce the concept from economics
of ‘efficiency’ to think about the limits to wealth
creation.
• We will then introduce two different concepts of
cost, necessary to identify profitable decisions.
, Creating Value and Wealth
• To identify opportunities to create value, we first need
to be clear about how wealth is created (and sometimes
destroyed).
• Definition: Value = willingness to pay.
• Desire for a product + income to purchase it.
• Definition: Wealth is the value of assets owned.
• Wealth is created when assets are moved from
lower to higher-valued uses.
• Voluntary transactions, between individuals or firms,
create wealth.
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