Applied Managerial Economics

The Signals vs Noise blog recently cited [via Carly Bishop Cheney] — aside: Carly's home page is dozens of megabytes so you might want to skip the link on your iPhone — the following tweet:

If I get one more inquiry from someone having a huge wedding at an expensive venue asking for ‘recession pricing’ I am going to explode!

Many comments support the logic that because the expenses haven't changed, there is no reason to consider changing the prices. This is, of course, missing half of the equation. A market has a supply curve (this is your expenses) and a demand curve. You are pricing at a markup over your cost, so, indeed, you do have some room to readjust prices.

Certainly, recessions can change the demand curve so it is worth considering whether this has any effect on the elasticity of demand at your current price. If you can increase your profit by lowering prices (thus selling more of your goods or services), you should certainly consider it, but, of course, one must consider the longer terms effects of this strategy. On the other hand, you might also consider raising your prices and selling less, but at a higher price. Elasticity will determine which strategy maximises profit.

I'm surprised that there are so many comments by those who things lowering their price during a recession is such a ridiculous proposition, mainly on the basis that their expenses haven't changed.

Accounting for Managers... Applied

In Melbourne Business School, one of the core MBA classes is Accounting for Managers which covers many topics in accounting that are important for managers. One cornerstone of accounting is when to treat a cost as an asset (capitalized) and when to treat it as an expense. A cost can be capitalized when:

• it is likely that future economic benefits will arise
• that amount can be reasonably estimated

Apparently George W. Bush, himself a Harvard Business School graduate, does not understand this distinction, or doesn't apply conservatism -- another key accounting principle -- when dealing with the American people. I immediately recognized this when reading this article from the New York Times:

But one reason that the agency’s deficit estimate was higher than those of outside analysts was that it added in hundreds of billions of dollars in spending tied to the government’s existing bailout programs, which the Bush administration has thus fare treated as “investments” it would recoup rather than “spending” or “costs” that are down the drain.

In other words, the bailout cannot be treated as an asset; it doesn't fit the above criteria and therefore must be expensed.

That worries me.

Something Very Interesting About Speed Dating

I've been thinking of doing speed dating for a while now, if only as a social experiment.

I'm currently reading The Logic of Life by Tim Harford (who I happened to miss when he was in Melbourne Business School last month). He has a very interesting chapter on dating and marriage. A few interesting bits:

• men will usually pick 1 in 5 women to date in speed dating. Women: 1 in 10
• men will select 1 in 5 regardless of the actual talent pool, i.e. we will lower our standards
• young, single women tend to congregate where men earn the most money, i.e. in the cities. This creates an abundance of single women.
• the high incarceration rate of young black males is one reason why African-American females are more likely to go to college.