Managerial Economics Introduction

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Managerial EconomicsIntroduction
2007
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Introduction

• Economic Problems
• - economic agents
• - factors generating economic problems
• - main economic questions
• - main economic problems
• Economics as a field of study
• - microeconomics
• - macroeconomics
• - international economics
• - managerial economics
• Economic models
• The Decision Process
• Opportunity cost
• The main controversies in managerial economics

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IntroductionEconomic Agents
Government
Final goods and services
L, N, K
Households
Firms
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What is the economic problem?Why did it occur?
The Doctor has no free appointments open till
December but he has a 30 appointment open this
afternoon
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Scarcity of Resources

• People always want more than they can afford
• Scarcity is a relationship between needs and
  resources
• Resources Factors of Production
• Labor (L)
• Land (N)
• Capital (K)
• (Entrepreneurship)
• - Technology a way of putting resources together

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Factors Generating Economic Problems

• Scarcity of resources
• Technological changes
• Changes in tastes and preferences

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Main Economic Questions

• Generators
• Scarcity of resources
• Technological changes
• Changes in tastes and preferences

• Questions
• What (and how much)
• How
• For whom

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Main Economic problems

• Questions
• What and how much
• How
• For Whom

• Problems
• Efficiency in allocation
• Efficiency in motivation
• Efficiency in distribution

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What Economics Is About

• Economics is the study of how economic agents
  make decisions what to produce, how to produce,
  and for whom to produce

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What Managerial Economics Is About

• Managerial Economics is the study of how firms
  make managerial decisions.
• It is an application of microeconomic concepts
  to business problems

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The Main Economic Problems of a Firm

• Resource allocation (under the conditions of
  scarcity)
• Resource utilization

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The Main Functions of a Business Economist

• to assess the economic, financial and political
  risks and opportunities in each market
• to identify and rank new market opportunities
• to analyze the change in business conditions

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Modeling Economic Relationships

• Model a simplified representation of reality
• Economic model a concise description of
  behavior and outcomes
• - variables endogenous vs. exogenous variables
  
• - assumptions
• - hypotheses
• - predictions
• Schematic Models
• Tabular Models
• Graphic Models
• Mathematical Models

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THE DECISION PROCESS
Establish objectives
Define the problem
Identify factors, affecting the problem
Specify alternative solutions
Collect data and other information
Evaluate and screen alternatives
Implement best alternative and monitor results
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Opportunity Cost

• Opportunity cost is what is given up in order
  to get something else the opportunity forgone
  when one makes an economic decision

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Main Problems in Managerial Economics

• The value of the firm Profit / f (i)
• Profit TR TC
• TR a responsibility of the sales and marketing
  departments
• TC a responsibility of production and human
  resource management
• i a responsibility of the financial department

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