TAILIEUCHUNG - Microeconomics for MBAs 31

Microeconomics for MBAs 31. 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 8 Consumer Choice and Demand in Traditional and Network Markets 47 Of course we recognize that you might -- just might -- be able to find someone with a large house in a place like Six Mile who might take the lower offer. We are only using comparative house sizes as a useful guide for narrowing the search or in other ways lowering the cost of your search. The person with a mansion in Six Mile is in short likely to be a hard sell. What you really want to find is someone who has a small house in a place like Six Mile and who is crazy about the beach and the moderate climate near the coast in Southern California. Indeed one of the often-overlooked reasons for interview trips is not only to assess the person s likely ability on the job but also to assess how much he or she likes the new location relative to his or her established location. People who like your location relatively more can simply be had for less. We need to return to the question we started with Should relocating workers be compensated for housing cost differences The answer is a qualified no. That is if housing makes up the main cost difference then workers moving to a higher housing cost location would be too well compensated if the full cost of living difference were paid. He or she would take less. How much less is a problem that can only be solved by way of interviews and negotiations. We caution however that our analysis flows from an unstated but important assumption that the housing cost difference in the two locations reflects actual cost differences that are not offset by benefit differences. That is many times a questionable assumption. Property near the coast in Southern California is much more expensive than in many but not all other parts of the country. It is also much more expensive than similar property fifty or a hundred miles inland but still in California. We must ask why property is so expensive and why so much of the cost difference is in the land that any house sits on. An

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