Exam Revision

1. Explore & understand the dimensions

of innovation: The 4P’s of Innovation
Table 1.5 Dimensions for innovation
Dimension Type of change

‘Product’ Changes in the things (products/services)

which an organisation offers.
Tesla

‘Process’ Changes in the ways in which these

offerings are created and delivered
Toyota Production System

‘Position’ Changes in the context into which the

products/services are introduced
easyHotel

‘Paradigm’ Changes in the underlying mental models

which frame what the organisation does
Amazon
 Creating the context for success
Figure 1.2 The resulting model: What we need to pay attention to if
we are going to manage innovation well
 4.1 Strategic Analysis
Figure 1.3 Exploring innovation space
 LO 2.1 What is creativity
• Creativity is often associated with the arts
• In business, creativity can be defined as the
production of new and useful ideas
• Ideas must fulfil a need in the marketplace and
generate profit
• Successful, innovative companies
do systematically encourage the
development of ideas
 5 Creativity techniques
Technique Description

Problem reversal The action of viewing a problem from an

opposite angle

Forced analogy The action of making an association between

two unlike things to obtain new insights

Attribute listing The identification and listing of all major

characteristics of a product, object or idea

Mind maps A visual method of mapping information to

stimulate the generation and analysis of it

Brainstorming A conference technique by which a group tries

to find a specific solution for a specific
problem by amassing spontaneous ideas
LO 2.4 Linking creativity, innovation &
entrepreneurship
Figure 2.4 A process model linking creativity, innovation and entrepreneurship

Figure 10.1
Definition Explained

Figure 3.1
The marketing environment
 Three market strategies
Figure 4.2
 LO 4.2 Segmentation
Segmentation variables: Characteristics that buyers have in
common and that might be closely related to their purchasing
behaviour.

Figure 4.5
 LO 4.3 Targeting

Figure 4.6
LO 4.4 Positioning
Figure 4.7
 Introduction

Economics

• The science of making decisions in the presence of

scarce resources.
– Resources are anything used to produce a good or
service, or achieve a goal.
– Decisions are important because scarcity implies
trade-offs.

1-15
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 Economics of Effective Management

Determining the Optimal Level of a

Total benefits
Total costs
Control Variable
Maximum total benefits
𝐶 ( 𝑄)

=
pe
Slo
𝐵 ( 𝑄)
Maximum net
benefits

=
lope
S

0 Quantity
(Control Variable)

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 The Production Function

Increasing, Decreasing, and Negative

Total product Marginal Returns
Increasing Decreasing Negative
Average product marginal marginal marginal
Marginal product returns to labor returns to labor returns to labor

Total product (TP)

Average product (APL)

0 Marginal product (MPL) Labor input

(holding capital constant)

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 The Cost Function
The Relationship between Average
ATC, AVC, AFC
and Marginal Costs
and MC ($) 𝐴𝑇𝐶
𝑀𝐶 A

Minimum of ATC

Minimum of AVC
𝐴 𝐹𝐶
0 Output

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 The Cost Function

Economies and Diseconomies of Scale

LRAC ($)

𝐿𝑅𝐴𝐶

Economies of scale Diseconomies of scale

∗
0 𝑄 Output

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 Perfect Competition vs Monopoly vs
Monopolistic Competition vs Oligopoly

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a. If this firm profit-maximizes, how much profit or loss will it earn?
b. What is the efficient scale of production?
c. What, if any, long run adjustment will take place in this industry?
d. Does this monopolistically competitive market produce the welfare-maximizing level
of output?

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 Simultaneous-Move, One-Shot Games

Dominant Strategy

Player B

Strategy Left Right

Player A
Up 10, 20 15, 8

Down -10 , 7 10, 10

Player A has a dominant strategy: Up

Player B has no dominant strategy

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 Simultaneous-Move, One-Shot Games

Secure Strategy

Player B
Strategy
Strategy Left Right
Player A
Up 10, 20 15, 8

Down -10 , 7 10, 10

Player A’s secure strategy: Up … guarantees at least a $10 payoff

Player B’s secure strategy: Right … guarantees at least an $8 payoff

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 Simultaneous-Move, One-Shot Games

Nash Equilibrium Strategy

Player B
Strategy Left
Left Right
Right
Player A
Up 10, 20 15, 8

Down -10 , 7 10, 10

A Nash equilibrium results when Player A’s plays “Up”

and Player B plays “Left”

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 Simultaneous-Move, One-Shot Games

Application of One-Shot Games:

Pricing Decisions
Firm B
Strategy Low price High price
Firm A
Low price 0, 0 50, -10

High price -10 , 50 10, 10

A Nash equilibrium results when both players charge “Low price”

Payoffs associated with the Nash equilibrium is inferior from the
firms’ viewpoint compared to both “agreeing” to charge
“High price”: hence, a dilemma.

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 Simultaneous-Move, One-Shot Games
Application of One-Shot Games:
Coordination Decisions
Firm B
Strategy 120-Volt Outlets 90-Volt Outlets
Firm A
120-Volt Outlets $100, $100 $0, $0

90-Volt Outlets $0 , $0 $100, $100

There are two Nash equilibrium outcomes associated with this game:
Equilibrium strategy 1: Both players choose 120-volt outlets
Equilibrium strategy 2: Both players choose 90-volt outlets
Ways to coordinate on one equilibrium:
1) permit player communication 2) government set standard
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Jean Baptiste Say – “Treatise on political economy” -
1767-1832

An economic agent who unites land, labour and

capital to produce a product.

By selling the product in the market he/she pays

‘rent’ on land, ‘wages’ to labour, ‘interest’ on capital
and what remains is ‘profit’

Entrepreneurs shift economic resources out of an

area of lower return and into an area of higher
productivity and greater yield.

Entrepreneurs have special qualities – judgement,

perseverance and knowledge – a higher level
understanding of human nature

Bringing the market system towards equilibrium by

satisfying unmet needs
 Entrepreneurship & Wealth Creation
• Entrepreneurship is often associated with
wealth creation in a business context.
• Making money and creating a personal fortune.

• Money is often the mechanism through which individuals (and those

around them) measure their success rather than an end in itself.
Entrepreneurship with a social purpose
9.4 explain how entrepreneurial
opportunities are formed
9.4 explain how entrepreneurial
opportunities are formed
10.1 provide a definition of entrepreneurship
and state the key elements of entrepreneurship
Final Exam

• 20 multiple choice questions (25%) – All chapters

• 1 case study with 4 short answer questions (75%) –
Market chapters
 Introduction

Case: Androgel

1. What is the market structure prior to entry by Watson

Pharmaceuticals and Paddock Pharmaceuticals? How
would it change if Watson and Paddock entered with
their generic versions?
2. What would happen to prices, sales, and consumer
surplus if the generic drug makers entered the market?
3. Why was it beneficial for Watson and Paddock to accept
the settlement instead of competing with AndroGel.
4. Could other potential entrants seek payments from
Solvay to stay out of the market?

1-34
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