Microeconomics for MBAs 19. The Economic Way of Thinking for Managers. Microeconomics for MBAs develops the economic way of thinking through problems that MBA students will find relevant to their career goals. Maths is kept simple and the theory is illustrated with real-life scenarios | Chapter 5 The Logic of Group Behavior In Business and Elsewhere 49 But at the level of the tribe or group society has always found itself able to With a reasonable degree of clarity both the theory and the evidence suggest that if society wishes to pursue some interest that is common to people on a very broad scale some means other than voluntary group cooperation must be found. It is for this reason we begin again a study of the markets after we look inside the firm to see how the logic of group behaviof explains incentives within firms. Review Questions 1. Explain why the free-ridef problem is likely to be greater in a large group than in a small group. 2. The common interest of people who are in a burning theater is to walk out orderly and in other ways avoid a panic. If that is the case why do people so frequently panic in such situations Use rational behavior and the logic of collective action in your answer. 3. Relating to we wrote that Harry is unwilling to eliminate more than Q1 dandelions and that Fred must bear a portion of the cost of eradicating dandelions if more than Q1 dandelions are to be eradicated. Explain these statements in terms of the graph. 4. Discuss the costs of making collective decisions in large and small groups. What do these costs have to do with the viability of large and small groups 5. Intelligent collective decisions can be a common interest shared by members of a large group. Does the analysis of in this chapter suggest anything about the incentive that individuals have to obtain information or about the intelligence of decisions that a large group will make 6. In what ways do firms overcome the problems discussed in this chapter relating to large groups How do market pressures affect firm incentives to overcome these problems 7. Would you expect private firms or government bureaucracies to be more efficient in pursuing the stated common objectives of the organization Explain in terms of the logic of collective
