Principles of Business I: Economics Production Functions

1. Sotheby’s InstitutePrinciples of Business I Professor Whitaker September 21, 2011 Week 3

2. production functions © Amy Whitaker - awhitaker@cca.edu

3. Costs Fixed Costs: overhead (rent, utilities). Does not vary with level of production. Variable Costs: materials, hourly workers. Varies with level of output. Opportunity Costs: the cost of your next best alternative. The value of your time.

4. Eadweard MuybridgeTime-Motion Studies

5. Frederick Taylor Scientific Management

6. Art?

7. Damien Hirst – For the Love of God © Amy Whitaker - awhitaker@cca.edu 1,106.18 carats = £12 million Craftsmanship = £1 million Sales price = £50 million Gallery cut = 50% [£25 million] Net revenue = £12 million Cost of skull? Overhead of studio? Profit? The value of his “his conception, his creative oversight, and his sheer chutzpah” – Sandy Nairne

8. The artist Ai Weiwei

9. “The use of slip without glaze is highly unusual on porcelain, although typical on stoneware, with which it bonds more completely. But “stoneware” lacks the cultural resonance of “porcelain,” which refers to a form the Chinese invented, and using glaze would have made the seeds less seedlike and probably very slippery, creating a different problem for the public.”

10. “The seeds, cast in porcelain, are painted with black slip — essentially liquid clay — and fired. (Some 1,600 residents of a village that once provided porcelain to the imperial court produced them over the course of several years, as documented in a video that accompanies the piece.) This process yields a matte finish that looks exactly like that of real sunflower seeds, but slip lacks glaze’s imperviousness to wear and tear.” - Roberta Smith, New York Times

11. Roberta Smith’s idea: Sell in bags to help defray cost of exhibition and so people can experience it Difference between art and commerce: Cost structure of making this? How many people and how much time do you think this took?

12. equilibrium pricing vs. “winner’s curse” © Amy Whitaker - awhitaker@cca.edu “A painting is not a loaf of bread or a can of beans or a Cadillac convertible or a share of General Motors stock. . .” - Arthur Rosett, Attorney General for the U.S. Government, 1963 [from Art Theft]

13. William Eggleston

14. Jenny Holzer

16. Sol LeWitt

18. Antony Gormley

19. Gormley

21. “Added Value” “Value-based pricing”

22. The creativity of the business model © Amy Whitaker - awhitaker@cca.edu

23. Excess Capacity ZipCar AirBnB Kickstarter

24. Scalable Technology

25. Fixed vs Variable Cost Sotheby’s Airlines Babysitter Tour de France team Museum exhibition

26. ReCaptcha

27. Oberonfmr.com Take waste that a company has to pay to dispose of and turn it into fish food Your negative externality is someone else’s positive, with some investment

28. Radiohead In Rainbows is the seventh studio album by the English rock band Radiohead. It was first released on 10 October 2007 as a digital download self-released, that customers could order for whatever price they saw fit, followed by a standard CD release in most countries during the last week of 2007. The album was released in North America on 1 January 2008 on TBD Records. In Rainbows was Radiohead's first release after the end of their contract with EMI and the end of the longest gap between studio albums in their career.

29. Donuts!

30. How much does it cost to make a donut? Premium donut - $2 - $3.50 price Basic donut - $0.80 - $1 Inputs: Flour, Sugar, Oil, Labor, Overhead

31. supply and demand © Amy Whitaker - a.whitaker@sothebysinstitute.com S (Supply) P (Price) D (Demand) Q (Quantity)

32. The alternate universe in which all donuts are created equal. Price = $9/dozen

33. Idea-driven business Brand as idea or purpose For-profit or non-profit Big picture or everyday The real world in which some donuts are better than others – and the donut company can be mission-driven

34. Business-model sleuthing:start making guesses (“sketching in numbers”)

36. © Amy Whitaker - awhitaker@cca.edu Inputs: Beer – fancy and cheap, Hot Dogs – buns, hot dogs, toppings

37. Happy Dog: what beyond the production function makes a successful businesS? © Amy Whitaker - awhitaker@cca.edu Gordon Square Gets Musical Gordon Square Gets Literary Orchestral Manoeuvres at the Dog Musicians who are dishwashers Ticket sales that go straight to the band