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Tool kits for economic decision making

As a economist or a decision maker, we cannot avoid decision making, from whether expand the scale of a company to judge which firm is the most efficient one. The question is "is there any useful information for making these tough decisions?"

  • Efficiency
See my previous post here.
  • Scale
Whether a firm should expand its size or not usually depends on the possible cost induced by the further expansion. Consider a firm producing only one type of product. If the its single-product cost function could be depicted as follows, it is encouraged to expand its size since the unit cost is decreasing with the level of output due the spreading  the fixed cost over a large number of units of a type of product.       

  • Scope
When a firm consider to produce one more type of output, economies of scope could be present if the total cost of joint production is less than the separate production.

this webpage perfectly explain the differences between economies of scale and scope.

  • Cost-effectiveness ratio

This index is wildly used in the filed of health economics to help decide whether certain treatment is effective and cheaper. See O'Hagan's work for the framework.

This article will continuously be updated and I welcome anyone of you to post your experience here.

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