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Managerial Economics-Charles W. Upton
The Economics of Bads
X
B
I1
IoX*
B*
The Economics of Bads 2
The Economics of Bads
• My wants are many but they do not include hard work.
The Economics of Bads 3
The Economics of Bads
• My wants are many but they do not include hard work.
• I like to earn a high return on my investments, but I don’t like to bear risk.
The Economics of Bads 4
The Economics of Bads
X
B
The Economics of Bads 5
The Economics of Bads
X
B
I1
Io
The Economics of Bads 6
The Economics of Bads
X
B
I1
Io
The Economics of Bads 7
The Economics of Bads
X
B
I1
Io
X*
B*
The Economics of Bads 8
The Work Leisure Choice
X
I1
Io
H*
X=10H
X*
The Economics of Bads 9
The Work Leisure Choice
X
I1
Io
H*
X=10H
1680
168
X*
The Economics of Bads 10
The Work Leisure Choice
X
I1
Io
H*
X=10H
Io1680
168
X*
The Economics of Bads 11
The Work Leisure Choice
X
I1
Io
H*
X=10H
Io1680
168
X*
L*
The Economics of Bads 12
The Work Leisure Choice
X
I1
Io
H*
X=10H
Io1680
168
X*
L*
L*+H*=168
The Economics of Bads 13
A Problem
• Helen Jones works 40 hours a week for a salary of $400. She would like overtime at $10 an hour.
The Economics of Bads 14
A Problem
• Helen Jones works 40 hours a week for a salary of $400. She would like overtime at $10 an hour.
• That is, the MB of $10 exceeds the marginal disutility of working an additional hour.
The Economics of Bads 15
A Problem
• She is offered a position paying 4% of sales. She has the following data on current employees:
The Economics of Bads 16
A Problem
• She is offered a position paying 4% of sales. She has the following data on current employees:
Employee Hours Sales
Wilson 40 $10000
Smith 50 $12500
Brown 30 $7500
The Economics of Bads 17
A Problem
• These data mean that you earn about $10 an hour.
Employee Hours Sales
Wilson 40 $10000
Smith 50 $12500
Brown 30 $7500
The Economics of Bads 18
Where She Is
X
B
Io
40
The Economics of Bads 19
Doing Better
X
B
I1 Io
400
40
The Economics of Bads 20
Take the Job
X
B
I1 Io
400
40
The Economics of Bads 21
A Second Problem
• Richard Jones has $100,000 to invest.
The Economics of Bads 22
A Second Problem
• Richard Jones has $100,000 to invest.
• He could put the money into zero risk government bonds
The Economics of Bads 23
A Second Problem
• Richard Jones has $100,000 to invest.
• He could put the money into zero risk government bonds
• He could put the money in the stock market
The Economics of Bads 24
A Second Problem
• Richard Jones has $100,000 to invest.
• He could put the money into zero risk government bonds
• He could put the money in the stock market
• How should he make his decision?
The Economics of Bads 25
A Second Problem
Return
“Riskiness”0
The Economics of Bads 26
A Second Problem
Return
“Riskiness”
Io
0
The Economics of Bads 27
A Second Problem
Return
“Riskiness”
Io
01
Ret*
Risk*
The Economics of Bads 28
End
©2005 Charles W. Upton
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