BEE1034 Week 3
Extent Decisions
and Investment Decisions
Slides based on material from Managerial Economics: A Problem Solving Approach (2 nd Edition)
Luke M. Froeb,
Brian T. McCann,
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
• This week, we aim to deepen our understanding
of how to take business decisions.
• We first look at so-called ‘extent decisions’:
how much labour to hire, how much inventory
to hold etc.
• Then we will consider investment decisions, or
how much capital to form.
• This is a kind of extent decision, but it involves
‘looking forward and reasoning back’.
, Extent Decisions and Marginal Analysis
• Is your staff big enough, or too big?
• Should you increase the quality of service?
• Should you change the level of advertising?
• How safe should you make your work
environment?
• Marginal analysis answers these questions.
This analysis tells you the direction of change
but not the distance.
Extent Decisions
and Investment Decisions
Slides based on material from Managerial Economics: A Problem Solving Approach (2 nd Edition)
Luke M. Froeb,
Brian T. McCann,
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
• This week, we aim to deepen our understanding
of how to take business decisions.
• We first look at so-called ‘extent decisions’:
how much labour to hire, how much inventory
to hold etc.
• Then we will consider investment decisions, or
how much capital to form.
• This is a kind of extent decision, but it involves
‘looking forward and reasoning back’.
, Extent Decisions and Marginal Analysis
• Is your staff big enough, or too big?
• Should you increase the quality of service?
• Should you change the level of advertising?
• How safe should you make your work
environment?
• Marginal analysis answers these questions.
This analysis tells you the direction of change
but not the distance.
