managerial
Chapter 1
1
Introduction
Economics and managerial decision making
2
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 firm’s 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 organization’s scarce resources Economics and managerial decision making
3
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
Strategy: types of competition, structureconduct-performance analysis
Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost
The Economics of Effective Management
4
An effective manager must
(1) identify goals and constraints;
(2) recognize the nature and importance of profits; (3) understand incentives;
(4) understand markets;
(5) recognize the time value of money; and
(6) use marginal analysis.
Economics and managerial decision making
5
Questions that managers must answer:
What are the economic conditions in our particular market? market structure?
supply and demand?
technology?
What are the economic conditions in our particular market? government regulations?
international dimensions?
future conditions?
macroeconomic factors?
Economics and managerial decision making
6
Questions that managers must answer:
Should our firm be in this business?
if so, at what price?
and at what output level?
How can we maintain a competitive advantage over other firms? cost-leader?
product differentiation?
market niche?
outsourcing, alliances,
1
Introduction
Economics and managerial decision making
2
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 firm’s 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 organization’s scarce resources Economics and managerial decision making
3
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
Strategy: types of competition, structureconduct-performance analysis
Managerial accounting: relevant cost, breakeven analysis, incremental cost analysis, opportunity cost
The Economics of Effective Management
4
An effective manager must
(1) identify goals and constraints;
(2) recognize the nature and importance of profits; (3) understand incentives;
(4) understand markets;
(5) recognize the time value of money; and
(6) use marginal analysis.
Economics and managerial decision making
5
Questions that managers must answer:
What are the economic conditions in our particular market? market structure?
supply and demand?
technology?
What are the economic conditions in our particular market? government regulations?
international dimensions?
future conditions?
macroeconomic factors?
Economics and managerial decision making
6
Questions that managers must answer:
Should our firm be in this business?
if so, at what price?
and at what output level?
How can we maintain a competitive advantage over other firms? cost-leader?
product differentiation?
market niche?
outsourcing, alliances,