1. Economic analysis is all about incrementalism. That's the entire concept behind the regression model that we learned this week: how to empirically identify the effects of making an incremental change to a managerial strategy.
(a) Provide at least two advantages/benefits to managing an operation by making frequent but incremental changes instead of making sweeping reorganizational changes.
(b) Now provide at least two advantages/benefits to managing an operation by making large, sweeping, but infrequent changes instead of more frequent but incremental alterations.
2. When managing an operation, there are always going to be periods when incremental changes are optimal and others when larger, more sweeping changes are needed. Think about the economic theory for explaining when each type of change is best.
Are incremental changes better to implement when "times are good" or when "times are bad"?
Are sweeping changes better to implement when "times are good" or when "times are bad"?
3. What are the dangers of extrapolating successes to incremental changes into successes to large changes? For example, suppose you made 1% increase in the use of an input and that led to increased profits by 2%. Can you then use this experience to increase your inputs by 100% and expect profits to increase by 200%?
Mathematically, this is a correct argument. Does the argument make sense economically? Why or why not?
In answering each question, please use economic theory and rationale to defend your answers.