Cost curves

aje on January 12, 2020

Case:

  • La Marmotte, January 2012
    Instructions: Complete Exhibit A and provide suggestions for the two key decisions

  • Spreadsheet.xlsx
  • Note: parts of this case rely on finding derivatives. Here is a background note:
Lecture handout: Cost curves*

Textbook Reading: Chapter 2 (Intro, Section 2.1 and 2.2, pp. 39-54)

La Marmotte was published by Sage in 2019. La Marmotte is a fictitious restaurant but based on a real business in Montalbert. You can see whether the skiing is good right now with this webcam.

Here is a video explaining the concept of the planning horizon:

A key part of this session is grasping the power of this tweet by Sam Altman:

My favourite example of the importance of having an intuitive understanding of the shape of average costs curves is this one:

And a good example of the difficulties of scaling is in this interview:

  • #482 – Pavel Durov: Telegram, Freedom, Censorship, Money, Power & Human Nature, Lex Fridman podcast (around 51 mins)
  • “The core engineering team is about 40 people… what we realised really early is that quantity of employees doesn’t always translate to quality of the product. In many cases it is the opposite. If you have too many people they have to coordinate their efforts, constantly communicate, and 90% of their time will be spent on coordinating the small pieces of work they are responsible for with each other.”
Learning Objectives: Sunk cost fallacy, short term shut down condition, profit maximisation, deriving a supply curve.

Cutting edge theory: La Marmotte was published in 2019!