LECTURE ONE:INTRODUCTION TO MANAGERIAL ECONOMICSManagerial Economics

Lecturer: Jack Wu

NCCU

MANAGERIAL ECONOMICS

Managerial economics: Science of directing scarce resources to manage more effectively

resources – financial, human, physical management of customers, suppliers,

competitors, internal organization organizations – business, nonprofit,

household

Managerial economics is based on microeconomics.

NEW ECONOMY: INTERNET

Managerial Economics also applies to the new economy.

Example: In pricing, Airlines use online auctions to segment their market between business and leisure travelers.

Example: In competitive strategy, Google competes fiercely with Yahoo.

OLD/NEW ECONOMY

Differences between “New” and “Old” economy:

_ role of network effects in demand **network effects – benefit/cost depends on

total number of other users example: Internt _ importance of economies of scale and scope example: Information in Yahoo is scalable

ORGANIZATION

Vertical boundaries – closer to or further from end user

Samsung Electronics – vertical boundaries longer than Intel – specializes in semiconductors (upstream) Motorola – specializes in mobile phones

(downstream)

ORGANIZATION

Horizontal boundaries – scale and scope of activities

Samsung Electronics – horizontal boundaries broader than LG.Philips LCD – specializes in LCD Motorola – specializes in mobile phones

MARKET

Market: Buyers and sellers communicate with one another for voluntary exchange

market need not be physical industry -- businesses engaged in the

production or delivery of the same or similar items

MARKET: CONTINUED

Competitive Markets Market Power Imperfect Markets

COMPETITIVE MARKET

Benchmark for managerial economics Extremely competitive market

many buyers and many sellers no room for managerial strategizing

Achieves economic efficiency

COMPETITIVE MARKET

Model: demand supply market equilibrium

MARKET POWER

Definition – ability of a buyer or seller to influence market conditions

Seller with market power must manage costs pricing advertising expenditure R&D expenditure strategy toward competitors

IMPERFECT MARKET

Definition: where one party directly conveys a benefit or cost to

others, or one party has better information than others