
From: Russell Nelson <nelson@crynwr.com>
Date: Sun, 27 Oct 2002 12:53:23 -0500 (EST)

Forrest J. Cavalier III writes:
 > I am not even close to being an economist.  I can recall taking
 > only one econ course (and it wasn't very good.)

Being an economist is not a result of classes taken or certificates
gained.  It's a way of thinking.

 > Is IRR a metric only for companies that remain in business?  Does
 > risk get ignored in the calculation?

IRR is basically a metric on what to spend more money on.  A product
in general requires a mix of inputs.  Each of these inputs has a cost,
and each of them contributes to the profits produced by a product.
Some of them go into each product and have an obvious IRR.  If you
need two X's which cost $1, and two Y which cost $0.25, and you can
re-engineer your product so that it can use three Y and one X, you'll
increase the IRR of the Y you purchase.  Same thing for goods and
services which aren't a part of the cost of goods sold.

IT has been one of the more productive investments in a company for at
least the last twenty years.  No reason to believe that's going to
change any time soon.  For example, the local newspaper just put in a
new printing press which lets them change the content of the newspaper
*on the fly* (only the black plate, and it ruins twenty papers in the
process).  All the moving parts on the press are synchronized, not
through gears, but through separate computer-controlled motors.

 > My understanding (very non-expert) was that microeconomics and
 > macroeconomics were separated due to the inability to expand the
 > tools, measurements, and theories of one branch far enough into
 > the other branch to be accurate.  Is my understanding wrong or
 > outdated?  

Not sure which.  In any case, macroeconmics is a load of hooey.

Microeconomics, and in particular, price theory, has reasonable
predictive value.  And apropos the Free Software Business mailing
list, if you're setting prices for your company's products and
services, and you don't understand price theory, you aren't setting
them correctly.  David D. Friedman has an excellent introduction to
price theory textbook free on his website (the altogether too
predictable http://www.daviddfriedman.com).

-russ nelson              http://russnelson.com |
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