Joel Dean (economist)

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Joel Dean (1906–1979) was an economist best known for his contributions to corporate finance theory in general, and particularly to the area of capital budgeting. [1] He is regarded as one of the founders of business economics. His work on pricing remains influential in marketing. [2]

Corporate finance area of finance dealing with the sources of funding and the capital structure of corporations

Corporate finance is an area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to maximize or increase shareholder value. Although it is in principle different from managerial finance which studies the financial management of all firms, rather than corporations alone, the main concepts in the study of corporate finance are applicable to the financial problems of all kinds of firms.

Capital budgeting includes all methods that allow a rational assessment of the calculable aspects of an investment

Capital budgeting, and investment appraisal, is the planning process used to determine whether an organization's long term investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structure. It is the process of allocating resources for major capital, or investment, expenditures. One of the primary goals of capital budgeting investments is to increase the value of the firm to the shareholders.

Business economics is a field in applied economics which uses economic theory and quantitative methods to analyze business enterprises and the factors contributing to the diversity of organizational structures and the relationships of firms with labour, capital and product markets. A professional focus of the journal Business Economics has been expressed as providing "practical information for people who apply economics in their jobs."

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Biography

Dean was born in Vershire, Vermont and educated at Pomona College (A.B. 1927), Harvard Business School (MBA, 1928) and at the University of Chicago (Ph.D, 1936). His doctoral dissertation discussed "A Statistical Examination of the Behavior of Average and Marginal Cost". [1] He was one of the founders of business economics with his Managerial Economics (1951) [3] and Capital Budgeting (1951) [4]

Vershire, Vermont Town in Vermont, United States

Vershire is a town in Orange County, Vermont, United States, created under Vermont Charter of August 3, 1781. The population was 629 at the 2000 census. The name Vershire is a combination of Vermont and New Hampshire.

Pomona College private liberal arts college in Claremont, California, USA

Pomona College is a private, nonsectarian, coeducational liberal arts college in Claremont, California, United States, often referred to as the premier liberal arts college on the West Coast. It was founded in 1887 by a group of Congregationalists who wanted to recreate a "college of the New England type" in Southern California, and in the 1920s, it became the founding member of the Claremont Colleges consortium.

A Bachelor of Arts is a bachelor's degree awarded for an undergraduate course or program in either the liberal arts, sciences, or both. Bachelor of Arts programs generally take three to four years depending on the country, institution, and specific specializations, majors, or minors. The word baccalaureus should not be confused with baccalaureatus, which refers to the one- to two-year postgraduate Bachelor of Arts with Honors degree in some countries.

His research covered costs, pricing, demand analysis, profits and profit management, and also competition and government regulations. [1] It was with the publication of his "Capital Budgeting" in 1951 [5] that NPV became widely used in corporate finance. [6] Discounted Cash Flow approach and Internal Rate of Return rule became popular by the ardent promotion of Joel Dean Associates. [7] [8]

Economic cost is the combination losses of any goods that have a value attached to them by any one individual. Economic cost is used mainly by economists as means to compare the prudence of one course of action with that of another. The goods to be taken into consideration are e.g. money, time and resources.

Pricing process of determining what a company will receive in exchange for its products

Pricing is the process whereby a business sets the price at which it will sell its products and services, and may be part of the business's marketing plan. In setting prices, the business will take into account the price at which it could acquire the goods, the manufacturing cost, the market place, competition, market condition, brand, and quality of product.

In finance, the net present value (NPV) or net present worth (NPW) applies to a series of cash flows occurring at different times. The present value of a cash flow depends on the interval of time between now and the cash flow. It also depends on the discount rate. NPV accounts for the time value of money. It provides a method for evaluating and comparing capital projects or financial products with cash flows spread over time, as in loans, investments, payouts from insurance contracts plus many other applications.

He taught at Indiana University, the University of Chicago, and Columbia University. During World War II he was with the Office of Price Administration, and was also a research associate of the Cowles Commission. In 1940 he founded Joel Dean Associates, a management consulting firm. He was on the editorial boards of the Journal of Industrial Economics and the Journal of Marketing for many years.

Indiana University university system, Indiana, U.S.

Indiana University (IU) is a multi-campus public university system in the state of Indiana, United States. Indiana University has a combined student body of more than 110,000 students, which includes approximately 46,000 students enrolled at the Indiana University Bloomington campus.

Columbia University Private Ivy League research university in New York City

Columbia University is a private Ivy League research university in Upper Manhattan, New York City. Established in 1754, Columbia is the oldest institution of higher education in New York and the fifth-oldest institution of higher learning in the United States. It is one of nine colonial colleges founded prior to the Declaration of Independence, seven of which belong to the Ivy League. It has been ranked by numerous major education publications as among the top ten universities in the world.

Office of Price Administration

The Office of Price Administration (OPA) was established within the Office for Emergency Management of the United States government by Executive Order 8875 on August 28, 1941. The functions of the OPA were originally to control money and rents after the outbreak of World War II.

Cost functions

Dean discovered [9] [10] that cost functions of firms are often straight line as opposed to S-shaped functions [11] a fact which disagreed with the classical assumption in microeconomics (which had not been based on observation). [12]

In economics, a cost curve is a graph of the costs of production as a function of total quantity produced. In a free market economy, productively efficient firms optimize their production process by minimizing cost consistent with each possible level of production, and the result is a cost curve; and profit maximizing firms use cost curves to decide output quantities. There are various types of cost curves, all related to each other, including total and average cost curves; marginal cost curves, which are equal to the differential of the total cost curves; and variable cost curves. Some are applicable to the short run, others to the long run.

Microeconomics is a branch of economics that studies the behaviour of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.

It is thought[ by whom? ] that Dean's observation was ignored by the mainstream economists, for it required a revolutionary change of the theory of microeconomics: if the cost function of a firm is linear, then the total variable cost is proportional to the production volume and the marginal cost is constant, in which case the usual formula "price = marginal cost" fails, and the common explanation as to why the supply curve is an increasing function of the market price also fails. [13] [14] [15]

Marginal cost factor in economics

In economics, marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good. Intuitively, marginal cost at each level of production includes the cost of any additional inputs required to produce the next unit. At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, whereas other costs that do not vary with production are fixed and thus have no marginal cost. For example, the marginal cost of producing an automobile will generally include the costs of labor and parts needed for the additional automobile and not the fixed costs of the factory that have already been incurred. In practice, marginal analysis is segregated into short and long-run cases, so that, over the long run, all costs become marginal.Where there are economies of scale, prices set at marginal cost will fail to cover total costs, thus requiring a subsidy. Marginal cost pricing is not a matter of merely lowering the general level of prices with the aid of a subsidy; with or without subsidy it calls for a drastic restructuring of pricing practices, with opportunities for very substantial improvements in efficiency at critical points.

In economics, market price is the economic price for which a good or service is offered in the marketplace. It is of interest mainly in the study of microeconomics. Market value and market price are equal only under conditions of market efficiency, equilibrium, and rational expectations.

Selected works

Joel Dean's best known work is Capital Budgeting (New York: Columbia University Press, 1951. ISBN   0-231-01847-9). His Statistical Cost Estimation (Indiana University Press, 1976), by contrast, is a forgotten book, perhaps for the reasons outlined above.

Other publications include:

Related Research Articles

Monopolistic competition Imperfect competition of differentiated products that are not perfect substitutes

Monopolistic competition is a type of imperfect competition such that many producers sell products that are differentiated from one another and hence are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms. In the presence of coercive government, monopolistic competition will fall into government-granted monopoly. Unlike perfect competition, the firm maintains spare capacity. Models of monopolistic competition are often used to model industries. Textbook examples of industries with market structures similar to monopolistic competition include restaurants, cereal, clothing, shoes, and service industries in large cities. The "founding father" of the theory of monopolistic competition is Edward Hastings Chamberlin, who wrote a pioneering book on the subject, Theory of Monopolistic Competition (1933). Joan Robinson published a book The Economics of Imperfect Competition with a comparable theme of distinguishing perfect from imperfect competition.

In economics, specifically general equilibrium theory, a perfect market is defined by several idealizing conditions, collectively called perfect competition. In theoretical models where conditions of perfect competition hold, it has been theoretically demonstrated that a market will reach an equilibrium in which the quantity supplied for every product or service, including labor, equals the quantity demanded at the current price. This equilibrium would be a Pareto optimum.

This aims to be a complete article list of economics topics:

Price quantity of payment or compensation given by one party to another in return for goods or services

A price is the quantity of payment or compensation given by one party to another in return for one unit of goods or services.. A price is influenced by both production costs and demand for the product. A price may be determined by a monopolist or may be imposed on the firm by market conditions.

In microeconomics, economic efficiency is, roughly speaking, a situation in which nothing can be improved without something else being hurt. Depending on the context, it is usually one of the following two related concepts:

Production function physical output of a production process to physical inputs or factors of production

In economics, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. One important purpose of the production function is to address allocative efficiency in the use of factor inputs in production and the resulting distribution of income to those factors, while abstracting away from the technological problems of achieving technical efficiency, as an engineer or professional manager might understand it.

Managerial economics deals with the application of the economic concepts, theories, tools, and methodologies to solve practical problems in a business. It helps the manager in decision making and acts as a link between practice and theory". It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units.

In economics and particularly in industrial organization, market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost. In perfectly competitive markets, market participants have no market power. A firm with total market power can raise prices without losing any customers to competitors. Market participants that have market power are therefore sometimes referred to as "price makers" or "price setters", while those without are sometimes called "price takers". Significant market power occurs when prices exceed marginal cost and long run average cost, so the firm makes economic profit.

Marginal revenue

In microeconomics, marginal revenue (MR) is the additional revenue that will be generated by increasing product sales by one unit.

In economics, the long run is a theoretical concept where all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long run contrasts with the short run where there are some constraints and markets are not fully in equilibrium.

In economics, supply is the amount of something that firms, producers, labourers, providers of financial assets, or other economic agents are willing and able to provide to the marketplace. Supply is often plotted graphically with the quantity provided plotted horizontally and the price plotted vertically.

Kinked demand economic theory regarding oligopoly and monopolistic competition

The Kinked-Demand curve theory is an economic theory regarding oligopoly and monopolistic competition. Kinked demand was an initial attempt to explain sticky prices.

Technically, shutdown occurs if average revenue is below average variable cost at the profit-maximizing positive level of output. Producing anything would not generate enough revenue to offset the associated variable costs; producing some output would add further costs in excess of revenues to the costs inevitably being incurred. By not producing, the firm loses only the fixed costs.

The following outline is provided as an overview of and topical guide to economics:

Profit, in accounting, is an income distributed to the owner in a profitable market production process (business). Profit is a measure of profitability which is the owner’s major interest in income formation process of market production. There are several profit measures in common use.

In economics, the marginal product of labor (MPL) is the change in output that results from employing an added unit of labor. It is a feature of the production function, and depends on the amounts of physical capital and labor already in use.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

References

  1. 1 2 3 Foundations of Business Economics: The Contributions of Joel Dean Walter J. Primeaux, Karen Fortin; University Presses of Florida, 1984
  2. Collection of groundbreaking writings in the field of advertising, Dr. A. Murdoch, SGH; www.netmba.com
  3. Joel Dean. Managerial Economics. Pp. xiv, 621. New York: Prentice-Hall, Inc., 1951.
  4. Joel Dean. Capital Budgeting: Top Management Policy on Plant, Equipment, and Product Development. 174pp. Columbia University Press, (June) 1951.
  5. Capital Budgeting (New York: Columbia University Press, 1951.
  6. Great Moments in Financial Economics: Present value Archived 2007-07-13 at the Wayback Machine ., Prof. Mark Rubinstein.
  7. R.H. Parker. Discounted Cash Flow in Historical Perspective. Journal of Accounting Research6(1): 58-71. 1968.
  8. Johnson, H.T. and Kaplan R.S. Relevance Lost: The Rize and Fall of Management Accounting, Harvard Business School Press, 1988. Chapter 7.
  9. Joel Dean 1936 "Statistical determination of cost, with special reference to marginal cost" The University of Chicago Press, Chicago-Ill.
  10. Joel Dean 1941 The Relation of Cost to Output for a Leather Belt Shop Published by NBER.
  11. Joel Dean 1976 "Statistical Cost Estimation", Indiana University Press.
  12. Richard A. Miller 2001 "Firms' Cost Functions: A Reconstruction," Review of Industrial Organization18(2) 183-200.
  13. Hans Apel 1948 Margianl Cost Constancy and its Implications. The American Economic Review38(5): 870-885.
  14. R. B. Heflebower 1955 Full cost, Cost Changes, and Prices. in NBER (Ed.) Business Concentrateion and Price Policy, Priceton University Press. https://www.nber.org/chapters/c0969
  15. Frederic S. Lee 1984 The Margianlist Controversy and the Demise of Full Cost Pricing, Journal of Economic Issues18(4): 1107-1132.