introduction managerial economics

Chapter 1

Introduction

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Chapter Outline

Economics and managerial decision making

Review of economic terms and concepts


Learning Objectives

Define managerial economics and discuss briefly its relationship to microeconomics and other related fields of study such as finance, marketing, and statistics.

Cite and compare the important types of decisions that managers must make concerning the allocation of a companys scarce resources.

Compare the three basic economic questions from the standpoint of both a country and a company.


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.



Management

The science of organizing and allocating a

firms scarce resources to achieve its

desired objectives.



Managerial economics

The use of economic analysis to make business decisions involving the best use (allocation) of an organizations scarce resources.



Relationship to other business disciplines



Questions that managers must answer: What are the economic conditions in our

particular market?

market structure?

supply and demand?

technology?



Questions that managers must answer: Should our firm be in this business?

if so, at what price?

at what output level?

can the firm achieve a sustainable competitive advantage?



Questions that managers must answer: What are additional economic conditions in our

particular market?

government regulations?

international dimensions?

future conditions?

macroeconomic factors?



Questions that managers must answer: What is our strategy to maintain a competitive

advantage in the market?

cost-leader?

product differentiation?

market niche?

outsourcing, alliances, mergers?

international perspective?



Questions that managers must answer: What are the risks involved?

changes in demand and supply conditions?

technological changes and the effect of competition?

changes in interest and inflation rates?

exchange rate changes for companies engaged in international trade?

political risk for companies with foreign operations?


Review of Economic Terms and Concepts

The economics of a business refers to the key factors that affect the firms ability to earn an acceptable rate of return on its owners investment.

The most important of these factors are

competition

technology

customers



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



Macroeconomics is the study of the aggregate economy, especially:

national output (GDP)

unemployment

inflation

fiscal and monetary policies

trade and finance among nations



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.



The Nature of Scarcity



Allocation decisions must be made because of scarcity. Three choices:

What should be produced?

How should it be produced?

For whom should it be produced?



3 Systems to answer the what, how and for whom questions

Market process: The use of supply, demand, and material incentives

Command process: The use of the government or some central authority

Traditional process: The use of customs and traditions



3 Basic economic questions - Country and company



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


Summary

Managerial economics is a discipline that combines microeconomic theory with management practice.

An important function of a manager is to decide how to allocate a firms scarce resources.

The application of economic theory and concepts helps managers make allocation decisions that are in the best economic interests of their firms.

introduction managerial economics

Documents

managerial economics

pearson education

basic economic questions

additional economic

particular market

review of economic terms

organizations scarce

world of scarce resources