Microeconomics for MBAs 54. 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 15 Competitive and Monopsonistic Labor Markets 42 firms and also implies that firm size and executive pay should be positively related which has been shown to be a pervasive feature of executive Hence they not only deserve higher salaries they must be paid higher salaries because if they are not other firms will hire them away. Once someone is promoted to the executive ranks his or her pay must also go up significantly at the time of the promotion simply because the executive becomes more visible to the rest of the relevant business community. Before the promotion other firms might be unaware of the executive s abilities. After all he or she might be toiling away with a team of other workers where his or her abilities can be difficult to evaluate especially by outsiders. By promoting a person a company announces to other firms that they have found someone in their midst who is unusually productive and might even be on a fast track to the top office in the firm. Outsiders no longer have to incur the costs associated with searching through a large group of some other firm s workers to find productive managerial talent. They can cherry pick limiting their picking to the cherries identified by others. The gap which can be substantial between the pay of those who are promoted and those under them can be partially explained not so much by their actual productivity as by the fact that the more productive workers at the bottom of the corporate ladder have not yet been discovered and just as in the case of aspiring actors managers understand -- or should understand -- that being discovered can be as important in rising through the ranks as actually acquiring the skills to undertake higher level jobs. Not all people with the acquired skills many of whom may be reading his book will make it onto the upper rungs of the corporate ladder. Hence outsiders can be expected to target those who are promoted elsewhere competing with the newfound executive s own firm. .
