Review Basic Economics for a Consulting Interview
It's very important to make sure you're up to speed on basic economics before a case interview, especially if you were not an economics major as an undergraduate student.
Steps
- Understand Supply and Demand. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product have on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.
- Know how to calculate Price Elasticity. Price Elasticity measures the effect of a product price change on the quantity demanded of the product. It is calculated as: % Change in Quantity Demanded / % Change in Price.
- Know how to calculate Marginal Revenue. Marginal Revenue is the increase in revenue that results from the sale of one additional unit of output. It is calculated by dividing the change in total revenue by the change in output quantity. While marginal revenue can remain constant over a certain level of output, it follows the law of diminishing returns and will eventually slow down as the output level increases.
- Law of diminishing marginal returns: There is a set number of employees needed to maximize output. In other words, at some point any additional employee hired will produce less output than the previous employee hired. After this, the amount of output will decrease as the number of employees increases.
- Be able to find Marginal Revenue Product. Marginal Revenue Product is the change in revenue that results from the addition of one extra unit, provided that all other factors are kept equal. It is used in marginal analysis to examine the effect of variable outputs, such as labor, and follows the law of diminishing marginal returns. As the number of units of a variable input increase, the revenue generated by each additional unit decreases at a certain point. It is calculated by taking the marginal product of labor and multiplying it by the marginal revenue of a firm.
- Understand the financial definition of Equity. Think of equity as ownership in any asset after all associated debts are paid off. For example, a house with no outstanding debt is considered the owner's equity because he or she can readily sell the time for cash. Stocks are equity because they represent ownership in a company.
- Know how to define Debt. Debt is an amount of money borrowed by one party from another. Many corporations/individuals use debt as a method for making large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with interest.
Tips
- Go to the website of the company you're interviewing with and get some company-specific details so that you're not caught off guard during your interview.
- Make sure you are also ready for the Ace the Math Portion of a Consulting Interview
