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Micro Economics Ia Vital Topic to Cover

In: Business and Management

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500_12489_CH07_170-191

3/17/05

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Page 170

chapter
7

>> Making

Decisions

A T A L E O F T W O I N VA S I O N S

O

N JUNE

6, 1944, ALLIED SOLDIERS

much should be used to defend Germany’s border with France? The original plan, devised by General Alfred von Schlieffen, allocated most of the German army to the invasion force; on his deathbed, Schlieffen is supposed to have pleaded, “Keep the right wing [the invasion force] strong!” But his successor, General Helmuth von Moltke, weakened the plan: he reallocated some of the divisions that were supposed to race through Belgium to the defence. The weakened invasion force wasn’t strong enough:

stormed the beaches of Normandy, beginning the liberation of

France from German rule. Long before the assault, however, Allied generals had to make a crucial decision: where would the soldiers land? They had to make what we call an “either–or” decision. Either the invasion

force could cross the English Channel at its narrowest point, Calais—which was what the Germans expected—or it could try to surprise the Germans by landing farther west, in Normandy. Since men and landing craft were in limited supply, the Allies could not do both. In fact, they chose to rely on surprise. The German defences in Normandy were too weak to Allies went on to liberate France and win the war. Thirty years earlier, at the beginning of World War I, German generals had to stop the landings, and the

What you will learn in this chapter:


How economists model decision making by individuals and firms The importance of implicit as well as explicit costs in decision making The difference between accounting profit and economic profit, and why economic profit is the correct basis for decisions The difference between “either–or” and “how much” decisions The principle of marginal analysis What sunk costs are and why…...

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