Managerial Economics Week 1
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6ech01_rev.pptChapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Chapter 1
Introduction
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Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Overview
- Economics and managerial
decision making
- Economics of a business
- Review of economic terms
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Learning objectives
- define managerial economics
- cite important types of resource
allocation decisions
- illustrate how economic changes affect a
firm’s ability to earn an acceptable return
- apply to an individual firm the three basic
questions faced by a country
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Economics and managerial decision making
Economics
The study of the behavior of human
beings in producing, distributing and
consuming material goods and
services in a world of scarce
resources
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Economics and managerial decision making
Management
The science of organizing and allocating a
firm’s scarce resources to achieve its
desired objectives
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Economics and managerial decision making
Managerial economics
The use of economic analysis to make
business decisions involving the best use
(allocation) of an organization’s scarce
resources
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Economics and managerial decision making
- Relationship to other business disciplines
Marketing: demand, price elasticity
Finance: capital budgeting, breakeven
analysis, opportunity cost, value added
Management science: linear
programming, regression analysis,
forecasting
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Economics and managerial decision making
- Relationship to other business disciplines
Strategy: types of competition,
structure-conduct-performance
analysis
Managerial accounting: relevant
cost, breakeven analysis, incremental
cost analysis, opportunity cost
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
*
Economics and managerial decision making
- Questions that managers must answer:
- What are the economic conditions in our particular market?
- market structure?
- supply and demand?
- technology?
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
*
Economics and managerial decision making
- Questions that managers must answer:
- What are the economic conditions in our particular market?
- government regulations?
- international dimensions?
- future conditions?
- macroeconomic factors?
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
*
Economics and managerial decision making
- Questions that managers must answer:
- Should our firm be in this business?
- if so, at what price?
- and at what output level?
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
*
Economics and managerial decision making
- Questions that managers must answer:
- How can we maintain a competitive advantage over other firms?
- cost-leader?
- product differentiation?
- market niche?
- outsourcing, alliances, mergers?
- international perspective?
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
*
Economics and managerial decision making
- Questions that managers must answer:
- What are the risks involved?
- shifts in demand/supply conditions?
- technological changes?
- the effect of competition?
- changing interest rates and inflation rates?
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
*
Economics and managerial decision making
- Questions that managers must answer:
- What are the risks involved?
- exchange rates (for companies in international trade)?
- political risk (for firms with foreign operations)?
Risk is the chance that actual future outcomes will differ from those expected
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Microeconomics is the study of individual consumers and producers in specific markets, especially:
- supply and demand
- pricing of output
- production process
- cost structure
- distribution of income
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Macroeconomics is the study of the aggregate economy, especially:
- national output (GDP)
- unemployment
- inflation
- fiscal and monetary policies
- trade and finance among nations
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Resources are inputs (factors) of production, notably:
- land
- labor
- capital
- entrepreneurship
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Scarcity is the condition in which resources are not available to satisfy all the needs and wants of a specified group of people
- Opportunity cost is the amount (or subjective value) that must be sacrificed in choosing one activity over the next best alternative
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Allocation decisions must be made because of scarcity. Three choices:
What should be produced?
How should it be produced?
For whom should be produced?
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Economic decisions of the Firm
What - begin or stop providing
goods/services (production)
How - hiring, staffing, capital budgeting
(resourcing)
For whom – target the customers most
likely to purchase (marketing)
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
Chapter One
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
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Review of economic terms
- Entrepreneurship is the willingness to take certain risks in the pursuit of goals
- Management is the ability to organize resources and administer tasks to achieve objectives
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall.
