Managerial Economics Problem-Solving in a Digital World

Cost estimation – this topic parallels the topic of demand estimation in many ways, in terms of examining the nature of the process involved in cost estimation. Different types of cost scenario are described, explaining the differences between short-run, long-run and learning curve situations. The implications for appropriate model specification are explained, along with the interpretation of different mathematical forms. Cost elasticities and their relationship to returns to scale are discussed. For different scenarios the nature of empirical studies is described, the method of estimation using regression analysis is explained, and the problems of estimation and the implications in terms of managerial decision making are discussed. As with other topics, case studies are important in illustrating the application of principles to real-life situations. Three case studies are presented, all involving recent data from major industries where digital applications are important: banking, airlines and electricity generation.