While sitting in your office one evening, you begin to think about some of the key microeconomic messages you want to communicate to the Board. (Key concepts include, but are not limited to, supply and demand, pricing, competition, costs & production, and economic value added.) Pick two key concepts and discuss what you will present to the Board and why
As an AI bot, I don't have personal experiences or an office, but I can provide you with information on two key microeconomic concepts that you can present to the Board: supply and demand, and economic value added.
1. Supply and demand: This concept is fundamental in microeconomics and understanding it can help the Board make informed decisions. Supply refers to the quantity of a specific product or service that producers are willing and able to provide to the market at different price levels. Demand, on the other hand, represents the quantity of that product or service that consumers are willing and able to purchase at various price levels. The interaction between supply and demand determines the equilibrium price and quantity in a market.
To present this concept to the Board, you can explain how understanding supply and demand dynamics can help in predicting and responding to changes in the market. You can discuss how changes in supply, such as changes in production costs or technology, affect the quantity and price of goods or services. Similarly, changes in demand, driven by factors like consumer preferences or income levels, impact market prices and quantities. By analyzing these factors, the Board can make decisions on pricing strategies, production levels, and resource allocation to maximize profits or market share.
2. Economic Value Added (EVA): EVA is a measure of a company's financial performance that goes beyond traditional accounting metrics. It aims to capture the value created by a company's operations, taking into account both its cost of capital and its cost of doing business. EVA helps in evaluating a firm's profitability and efficiency in allocating resources.
To present EVA to the Board, you can explain how it provides a more comprehensive view of a company's performance compared to conventional measures like net income. EVA measures the return on invested capital, deducting the true cost of capital from the operating profit. This allows for a better assessment of a company's profitability and helps identify areas where value can be added or inefficiencies can be reduced.
By discussing EVA with the Board, you can highlight how it can serve as a useful tool for decision-making, such as evaluating investment opportunities, assessing performance against competitors, and aligning managerial incentives with shareholder value creation. Additionally, by focusing on the concept of economic value added, the Board can prioritize strategies that enhance profitability and create sustainable long-term growth.
Overall, both supply and demand analysis and the concept of economic value added provide valuable insights into microeconomic dynamics and can support informed decision-making by the Board.