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MANAGING PROJECTS

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Projects represent nonroutine business activities that often have long-term strategic ramifications for a firm. In this chapter, we examined how projects differ from routine business activities and discussed the major phases of projects. We noted how environmental changes have resulted in increased attention being paid to projects and project management over the past decade. In the second half of the chapter, we introduced some basic tools that businesses can use when planning for and controlling projects. Both Gantt charts and network diagrams give managers a visual picture of how a project is going. Network diagrams have the added advantage of showing the precedence between activities, as well as the critical path(s). We wrapped up the chapter by showing how these concepts are embedded in inexpensive yet powerful software packages such as Microsoft Project. If you want to learn more about project management, we encourage you to take a look at the Web site for the Proj...
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Firm Behaviour and the Organization of Industry

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Profit equals total revenue minus total cost.
When analyzing a firm’s behaviour, it is important to include all the opportunity costs of production. Some of the opportunity costs, such as the wages a firm pays its workers, are explicit. Other opportunity costs, such as the wages the firm owner gives up by working in the firm rather than taking another job, are implicit.
A firm’s costs reflect its production process. A typical firm’s production function gets flatter as the quantity of an input increases, displaying the property of diminishing marginal product. As a result, a firm’s total cost curve gets steeper as the quantity produced rises.
A firm’s total costs can be divided between fixed costs and variable costs. Fixed costs are costs that are not determined by the quantity of output produced. Variable costs are costs that directly relate to the amount produced and so change when the firm alters the quantity of output produced.
From a firm’s total cost, two related measures of cost are derived. Average total cost is total cost divided by the quantity of output. Marginal cost is the amount by which total cost changes if output increases (or decreases) by 1 unit.
When analyzing firm behaviour, it is often useful to graph average total cost and marginal cost. For a typical firm, marginal cost rises with the quantity of output. Average total cost first falls as output increases and then rises as output increases further. The marginal cost curve always crosses the average total cost curve at the minimum of average total cost.
A firm’s costs often depend on the time horizon being considered. In particular, many costs are fixed in the short run but variable in the long run. As a result, when the firm changes its level of production, average total cost may rise more in the short run than in the long run.
The use of isoquants and isocosts helps conceptualize the reasons why firms make decisions to change factor combinations used in production and how the prices of factor combinations can also influence those decisions.

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