Thursday, February 23, 2006

For your own safety, don't use wrong examples

This is a small tip for fellow econ instructors, especially in microeconomics.

We teach students that in general, firms maximize profits. Then we talk about the anatomy of profit. That is, it consists of revenue and costs. So, profit is simply revenue minus cost. Then we go on with some examples.

My suggestion, avoid using state-owned enterprises as example. Never use Pertamina, PLN, Telkom and all that. Because, when they report profit (or loss, usually), we have no idea how they calculate it. The profit (or loss, usually) figure is there. But notice. When it comes to introducing or installing a new policy that affects these enterprises, the government always has to ask the cost figure (in particular primary production costs). And they ... start to calculate! It happened to Pertamina, now we are WAITING for PLN's cost calculation! So what profit (or loss, usually) they always report? Well, either they don't know how to calculate profits, or they lie.

Avoid using bad examples.

1 comment:

andersonite said...

which profit? this year's or next year's? Here in business school, we are taught that firms maximize shareholder's value, not profit. They are not the same.