Tuesday, August 31, 2010

The Difficulty of Profit Maximization

Here is an interview with Dick Kovacevich, CEO of Wells Fargo. In the interview Mr. Kovacevich is asked about customer relations, optimal number of franchises, labor issues among others. These are difficult issues by themselves, but combined - along with a host of other changes by the firms competitors, government policy and in some cases their customers, this results in a vastly complicated optimization problem. In the courses that I teach that focus on firm decision-making and its analysis - I tackle only one problem at a time - in order to see the direct effect of the policy or problem on the firms profitability. In the real world, firms do not have the luxury of looking only at one problem at a time, but rather face a vast array of decisions to make, with many conflicting with their overall goal or goals. So, while I will be looking at a variety of optimal decision-making variables, please note that the solutions are not as easy as presented in class.

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